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How Covid-19 could affect your DB endgame journey

Our second report on the FTSE350 defined benefit (DB) market analyses the potential impact of Covid-19 on life expectancy — and how this may influence DB schemes’ journey to their endgame.

FTSE350 companies are increasingly transferring the risks of running and maintaining DB pension schemes to the insurance market, through buy-ins, buyouts and longevity swaps. 

However, there is uncertainty concerning the impact of Covid-19 on life expectancy – and the resulting impact on valuing pension scheme liabilities.

"The outlook for future longevity remains difficult to predict. This is due to uncertainty around how a number of key factors influenced by the pandemic are likely to play out over the next five to ten years."

So, for companies considering the potential cost and timing of approaching the insurance market, this has created additional complexity.

 

Key findings 

A blue location pin with a white circle displays the text "£800bn+" in blue. The pin suggests a significant financial figure, likely in a financial or economic context.

Assets put aside to meet future promised pension payments

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UK DB pension scheme liabilities transferred to insurers during 2019 and 2020

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Average time to buyout, based on a positive life expectancy impact scenario.

A blue location pin displays the text "5 years 1 month" inside a white circular area, indicating a duration. The pin suggests a focus on time-related information or milestones.

Average time to buyout, based on a negative life expectancy impact scenario.

Journey to the endgame

The pandemic has highlighted the need for diligent risk management. And with the Pensions Regulator (TPR) requiring schemes to think about their long-term strategies, now might be an ideal time to consider management of longevity risk over the long-term. 

A good journey plan, reviewed regularly, should give a clear picture of where the scheme is on its path. It should also dovetail with the funding, investment and administration activity (e.g. getting the data ready for buyout) associated with risk-reduction exercises.

Our DB Navigator framework can help companies and trustees chart the DB endgame journey and agree a plan that caters for the needs of trustees, sponsors and shareholders. 

Please contact Simon Taylor or Simon Bramwell if you would like to discuss any of the topics in more detail.

Download the full insights report.

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