JT Dove lowers deficit following mortality study

Using more accurate assumptions on longevity has been touted as an effective strategy for reducing scheme deficits. In January, analysis by Club Vita, a community of pension schemes established by consultancy firm Hymans Robertson, said that this improved accuracy could reduce the collective UK DB deficit by £25bn.

The Mums was conducted following the scheme’s latest actuarial valuation in June 2016. Having expected a deficit of £6.2m, this figure was revised down to £5.5m after the study.

The cost of this was tiny compared to the saving. It’s a very cost-effective way of investigating the problem

Ashley Wilton, JT Dove Pension Scheme

The scheme, comprised of around 400 members, had approximately 66 per cent of scheme members participate in the study.

Long-term value

According to Ashley Wilton, chair of the scheme trustees, the decision to pursue a Mums followed concerns among the trustees over previous attempts at valuing the scheme’s liabilities. In 2013, the trustees became aware of the ability to assess life expectancy through analysis of postcodes.

Builders' merchant JT Dove is situated in Newcastle. Wilton cited the north of England’s “reduced life expectancy” and extensive levels of manual labour carried out by the majority of scheme members as drivers for the scheme to incorporate judgments on the members’ health, as part of its approach to liability measurement.

There is debate over the cost and long-term value of undertaking Mums. Wilton said that the exercise had proven financially worthwhile, and that the actuarial assumptions drawn from the study may be utilised again in the near future.

“The cost of this was tiny compared to the saving. It’s a very cost-effective way of investigating the problem,” he said.

Data concerns can put members off

Completion of the study carried out by MorganAsh was optional for members.

Mark Sullivan, global practice lead at Fidelity Investments Benefits Consulting, said that he was unaware of a minimum useful threshold for study participation.

"I’ve seen it done for, or recommended to be done for, as low as 150 plan participants… I would have said that 66 per cent is quite an impressive turnout,” he said.

With the industry’s increasing focus on data retention and the imminent implementation of the General Data Protection Regulation in May 2018, the use of sensitive medical details to inform scheme decisions might appear daunting to some.

The burden of responsibility, however, lies with the insurer or other third party that manages the data, according to Sullivan, who contended that concerns over data protection may deter members from taking part in Mums.

“I suspect that’s what leads to some people’s reluctance to respond, because [whether] they... have medical conditions or otherwise, they might feel pretty uncomfortable in actually providing that information to a third party, even if it’s for the right reasons,” he said.

Medical data gathered during the JT Dove Mums has since been deleted.

Could Mums increase your liabilities?

While this scheme has successfully brought down its liabilities with a Mums, using the study could have the reverse effect of widening a deficit with increased liabilities.

Aled Edwards, principal consultant and actuary at Quantum Advisory, said there is a risk for the employer that the results of a mortality study could reveal the scheme members are healthier than average.

“There is however a counter-argument that, even where the mortality study reveals the scheme members to be above average health, it would still be possible to agree to a lower level of technical provisions due to the removal of some uncertainty,” he added.

The benefits of Mums can go beyond reductions in scheme liabilities, according to Edwards. They can be used for company accounting valuations under IAS 19 and FRS 102 accounting standards.

“The Johnston Press pension scheme reduced its accounting deficit by £50m in 2016 following a Mums exercise, and this coincided with a 13 per cent increase in the employer’s share price”, he said.