Smarter longevity analysis from Club Vita set to save costs in the 2010 actuarial valuations.

Club Vita, the longevity experts, has collated its findings from the first 18 pioneering local authority pension funds who have tailored their longevity assumptions to each of their members.  The research note - ‘Dying to Save Costs?’ - describes the financial impact of using next generation models to set longevity assumptions that reflect the rich diversity of schemes’ members, allowing for variations in affluence and lifestyle from person to person.

The research quantified the impact of using bespoke longevity assumptions on the reserving for future pension payments.  It revealed that:
 
• the overall value placed on the pensions was lower in all 18 funds, leading to higher solvency levels and reduced deficits;  
• spreading the gain over 20 years, employers’ contributions would reduce by an average of 1% of payroll or a saving of £2m a year on average per fund;  
• the record saving so far is £9m a year, relating to a leafy shire -  the type of pension fund that has feared news on life expectancy in the past;   
• if the same pattern is repeated across the country,  there is an estimated saving of around £200m a year.

Douglas Anderson, the founder of Club Vita, commented: “In these times of tight public spending, it is wonderful to be able to deliver major savings to the funds that supported the development of Club Vita. The combination of larger pools of data and powerful statistical analysis has enabled previously unknown margins to be removed.

“Separating out the longevity assumptions into today’s ‘baseline’ longevity and the allowance for future improvement has given these local authority schemes much greater insight into their ‘real time’ and future funding requirements.  The pioneering local authorities that subscribed to Club Vita are typically seeing significant savings in the baseline longevity element.  Additionally, we suspect that the size of the part of the employer’s contributions that represents a contingency reserve for longevity improvement will come as a surprise to many.”