Pandemic could reduce pension scheme liabilities by £90bn

The long-term impact of Covid-19 on life expectancy could reduce pension liabilities by as much as 5%, or £90 billion (€99 billion), across the defined benefit universe.

The finding comes from research by the UK-based consultancy XPS Pensions Group which also found that in some scenarios the long-term economic impact of Covid-19 on life expectancy could be 50% higher than the short-term impact of the pandemic.

The economic impact on schemes’ assets is also potentially significant, especially for schemes holding growth assets and/or with low hedging ratios.

Dan Auton, longevity analytics head at XPS, said: “Trustees can now make accurate decisions based on the specific characteristics of scheme members, as well as the severity of the pandemic.

“This new analysis cuts through the noise and presents a scheme-specific impact.  It gives trustees and sponsors a much greater understanding of how their members and the scheme’s funding position may be impacted and, with the pandemic likely to continue into 2021, also maps the risks that look set to be a reality for some time to come.”

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