Aon cautions pension schemes against over-reaction to COVID

Aon urged pension schemes to take a balanced view of the impact of COVID?19, and to be wary of assessments based on just the negative factors

Re/insurance broker Aon has predicted that 2021 will be another huge year for the UK risk settlement industry but has also cautioned against over-reaction to the impact of COVID?19 on longevity assumptions.

It is maybe no surprise that we have seen knee-jerk reactions in some quarters implying that there must be a negative impact on future life expectancy from COVID-19, said Tim Gordon, head of Demographic Horizons in Aon’s Risk Settlement Group.

Aon urged pension schemes to take a balanced view of the impact of COVID?19 on life expectancy and, in particular, to be wary of assessments that take account of just the negative factors.

Sadly, there are, of course, negative factors, including the potential impact on life expectancy of the economic impact we are likely to see. Even so, it is surprisingly hard to prove such a link using historical UK data, Gordon continued.

But there are also positive factors, he added, noting that mortality in 2020 was actually in line with what was expected (excluding April and May), continuing a recent trend of improving longevity.

Ironically, COVID?19 could itself lead to improved longevity, by driving healthier individual behaviours and from greater attention to healthcare in all its guises, Gordon remarked.

On top of this, Aon referenced the Phase III vaccine trials, which have been much better than expected, with the UK at the top of the international league both for securing its vaccine supply and for its distribution.

Martin Bird, senior partner and head of Aon’s Risk Settlement Group, also commented: Despite all else that has occurred this year, we are predicting that UK pension scheme risk settlement transactions, that is, bulk annuities and longevity swaps, will reach over £50 billion of hedged liabilities for 2020. At a total £55 billion, 2019 was itself a spectacular doubling of the market.