Mortality Monitor Q3 2019

The first half of 2019 saw relatively few deaths in the UK. A continuation of this trend could have a noticeable impact on pension schemes. We explore below what the latest data tells us about the likely picture for the year.

In my previous blog I discussed how, after a number of years of relatively high deaths, the first half of 2019 was actually relatively light when it came to deaths, starting with a very mild winter, and limited flu impact, as well as a noticeable absence of “NHS in crisis” media headlines. Indeed the weekly deaths in England & Wales over the first half of 2019 were lower than any of the preceding 5 years.

Over the last few years, successive versions of the CMI’s mortality improvements model (which is calibrated to England & Wales population data) have typically resulted in reductions in the assumed rates of improvement, and so liabilities. However, I estimated that were the trend over the first half of the year to continue throughout 2019, we could see a change in direction from next year’s model (CMI_2019), with liabilities increasing by upwards of 1%.

Since the previous update we’ve seen record breaking summer temperatures, with an associated spike in deaths. The key question is whether this has been enough to dampen the overall reductions in deaths over the year. Looking ahead, as there are only a few months left of the year, we can be more confident about the outlook for 2019 as a whole, and the implications for pension schemes in particular.

The latest data on population experience

We keep a close eye on the weekly death statistics for England & Wales, as published by the ONS, as they can provide a useful ‘temperature check’ on emerging trends in longevity.

In considering weekly death numbers, it is important to also allow for the expected impact of the ageing population. If mortality rates were to remain unchanged, we would still expect the number of deaths to increase by 2-3% from one year to the next. For deaths to fall we would therefore have had to experience relatively strong improvements (reductions) in mortality rates to counteract the impact of ageing.

The CMI have now published the latest version of their quarterly Mortality Monitor, covering their analysis of the ONS data for the first three quarters of 2019 (to the end of week 39, 27 September 2019). This analysis focuses on standardised mortality rates (SMR), which control for changes in age profile of the population over time. These rates are a useful way to quickly compare changes in mortality rates over time, although clearly some of the finer detail of age based trends can be lost as a result of standardisation.

The main headlines from this edition are as follows:

  • The annual average SMR (the rolling average of weekly SMRs over successive 53-week periods) has fallen over the period from mid-2018, reaching the lowest value since weekly deaths data became available at the end of the third quarter of 2019;
  • The quarterly average SMR (the rolling average of weekly SMRs over successive 13-week periods) has continued to be relatively light; and
  • Cumulative SMR over 2019 to date (the SMR over the period to the end of week 36) has remained well below the average of the previous 10 years, and in fact is now noticeably lower than the corresponding values in any of the last 10 years.

What this means for pension schemes

The chart below looks at the range of potential annuity values that we may see in CMI_2019, depending on how the last quarter of the year turns out.

As well as the ‘central’ estimate that the current improvement in cumulative SMR remains at the current level of 4.9%, we also consider how the values might change if deaths over the last quarter of 2019 were in line with the highest or lowest values seen over 2009 to 2018. 

We also show corresponding values for the periods underpinning the previous variants of the CMI model, which show the downwards trend over the last few years. 

Note: The annuity values shown are for men at age 65, based on the S3PMA base table, with a net interest rate of 0% p.a. and assuming a long-term rate of 1.5% p.a. in each case. Calculations were carried out using the CMI_2018 model, and the E&W population data included with that model. CMI_2019 values are based on fitting the model to 1979 to 2019, where the level of deaths in 2019 have been estimated using improvements of 3.5%, 4.8% and 6.2%, and assuming exposures in 2019 are equal to those in 2018.  The calculation date is set to 1 January 2020 throughout.

We can see how it is likely that there will be at least some ‘bounce back’ to higher annuity values (and so liabilities) in the published CMI_2019 model (assuming no further changes to core settings). Schemes which have been adopting core values without adjustment will therefore see an increase in liabilities.

Looking forward

While there’s only one quarter of the year left, deaths tend to increase as we move into the winter months, particularly when there are prolonged cold periods and/or severe flu (Australia saw an early start to their flu season, although the mortality impact was not as severe as initially feared). So there remains some scope for things to change in the remaining quarter of the year.

And looking further ahead, we need to consider whether any ‘bounce back’ in 2019 is expected to be a temporary blip or a return towards the high levels of mortality improvements seen through much of the 2000s.

We will of course be continuing to monitor emerging experience over the weeks and months ahead.

This report complies with the requirements of Technical Actuarial Standard 100 as effective from 1 July 2017.

Note the analysis of the Q2 Quarterly Monitor used a slightly different approach, where annuity values shown in the chart were based on varying calculation dates (e.g. 1 January 2019 for CMI_2018) and the spread shown reflected an assumption that deaths in the second half of 2019 would be 2.5% higher/lower than the same period in 2018. The updated approach focuses on an individual life rather than varying birth cohort, and considers extremes in number of deaths seen over the last decade. 

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