LGPS Longevity Update – July 2020

Mortality assumptions resulting from our analysis were set as an adjustment to the most appropriate mortality table. These adjustments resulted in a range of results with the highest and lowest life expectancies for each post-retirement membership group set out in Table 1.

Table 1: Life expectancies at age 65 by membership status resulting from 2019 mortality experience analysis of LGPS funds*

*Life expectancies all as at 31 March 2019 with no allowance for future mortality improvements.

The results for some funds were combined where they had similar experience to increase the credibility of the results, as some funds experienced only a small number of deaths (with one particular fund experiencing only 17 deaths over the five year analysis period).  

Generally, updates to adjustments and mortality tables, relative to the 2016 assumptions, resulted in a decrease in both life expectancy and liabilities for pensioners, all else being equal. Life expectancies varied across funds by up to 2.4 years for male pensioners but only by one year for female pensioners, suggesting that perhaps female pensioners share similar characteristics across the range of LGPS funds than males. The range was bigger for dependant members, both males and females, although there is less data for dependants than pensioners so this increase in variability of results may reflect more uncertainty in the results.

Data quality

The data used for the equivalent mortality experience analyses carried out for the 2016 valuation followed shortly after funds had transitioned to the Universal Data Capture (UDC) format. This led to some instances where data was of a lower quality and data adjustments or updates were needed. 

We found that the data submitted for the 2019 experience analysis was, in general, of much higher quality, and there was more consistency across the funds. It would appear that data cleansing has also resulted in a considerable improvement in data quality and therefore, in the reliability that can be placed on results.

In addition to mortality experience analysis, an analysis of the socio-economic profile of each LGPS fund was carried out using postcodes of the current membership as an indicator of socio-economic status. The analysis utilised Barnett Waddingham’s postcode tool, which was new for the 2019 analysis. It uses a member’s ‘Acorn’ type, based on their postcode, to classify the relative prosperity of different neighbourhoods where members live according to the Index of Multiple Deprivation (IMD) measure. This is a government classification ranking areas from 1 (most deprived) to 10 (least deprived).

This was useful in ensuring the robustness of our recommendations by:

1. Comparing pre-retirement members with post-retirement members to judge whether our recommendations for post-retirement mortality are likely to continue to be suitable for each fund in the future.

2. Comparing profiles between LGPS funds to understand the appropriateness of combining the experience of certain funds for greater accuracy where a low number of deaths affected the credibility of results.

Chart 1 compares the socio-economic profile of post-retirement members (pensioners and dependants combined) in each of the 20 LGPS funds who took part in our analysis. A straight line from bottom-left to top-right would indicate that the membership was drawn equally from each of the 10 IMD groups.

Chart 1: Socio-economic profile of LGPS funds for pensioners based on Barnett Waddingham postcode tool rankings by IMD. 

The chart shows that members of the LGPS funds analysed come from a range of socio-economic backgrounds, but that some funds have significantly higher proportions of their membership in the lower socio-economic groups than others (the lines that are higher than the others in Chart 1). The results of this analysis tied in well with the results of the mortality experience analysis, with funds whose members live in more deprived areas generally experiencing heavier mortality (i.e. more deaths).

Based on those present, funds have not made any short term tactical investment decisions yet, as expected. Investment strategy reviews often happen after the valuation but these have been put on hold in some cases until markets settle down. 

Given the strong performance over the first ten months of the 2019/20 Scheme year, diversification of assets and lower inflation the funding level has not decreased as much as you might think based on market headlines.

For the mortality experience analysis, we used the most recent version of the CMI Mortality Projections Model (the CMI Model) at the time of the 2019 valuation, CMI_2018. The model is used by the fund actuaries to make estimates about how life expectancies will change in the future. You may be aware that recent evidence has suggested there has been some slowing down in future mortality improvements (i.e. people still living longer but not increasing at such a high rate that we have seen in the past). 

There are a number of parameters that feed into the model which we also considered as part of our analysis. The initial addition parameter, a new parameter, first introduced as part of CMI_2018, allows us to adjust the initial level of mortality improvements so they are appropriate to LGPS funds. A positive initial addition parameter means that we think the improvements of LGPS funds are higher (i.e. longer life expectancy) than for the general population. 

Our analysis showed that there is considerable volatility in the improvements in both the LGPS funds dataset and in the general population of England & Wales for all age groups. Although there was a range of assumptions which could have been appropriate, the majority of funds adopted an initial addition of 0.5% and we are comfortable that this assumption is reasonable based on the available evidence. Using 0.5% suggests that members of LGPS funds would expect to see slightly longer life expectancies on average, compared to the general population. 

"Overall the slowdown in mortality improvements resulted in a decrease in funding liabilities for most funds as life expectancies on the whole were lower in 2019 compared with 2016."