Health Advances Raise Longevity Concerns
Life expectancy assumptions built around steady improvement face new challenges from metabolic health treatments. Breakthrough GLP-1 drugs and other innovations may reshape mortality trends, creating uncertainty for pension funds. Nearly nine-in-ten defined benefit pension trustees have not yet assessed the impact of this uncertainty on scheme liabilities, according to Standard Life research. While 75% of such schemes sit in surplus on a low-dependence basis, these positions could come under pressure if mortality improves faster than expected. Preventable mortality may not yet be fully reflected in long-term assumptions.
Trustees lag behind on risk assessment
Obesity drives deaths in the UK through related long-term conditions, making it one of the leading risk factors for premature mortality. Recent modelling studies suggest GLP-1 treatments could lead to mortality reductions of 1.8% to 5.1% over the longer term, though outcomes vary widely based on uptake, access, and long-term effectiveness. Standard Life research shows that 69% of DB trustees have not had the opportunity to consider the impact of these weight-loss drugs on life expectancy and benefit payment.
Claire Altman, Managing Director – Pensions Risk Transfer & Individual Retirement at Standard Life, stated that for many years, life expectancy assumptions were built around a relatively steady pattern of improvement, but that narrative has been challenged in recent years by the pandemic. While headline mortality rates are beginning to normalise, there is now greater uncertainty around future improvements. Healthy life expectancy has fallen to its lowest level since records began in 2011, sitting at around 60 years old for both men and women.
Longer lifespans change financial calculations
Improved health outcomes could extend how long pensions are paid, creating new considerations for schemes approaching buy-in or buyout. Longer lifespans may influence pricing, investment horizons, and the long-term affordability of benefits. Trustee boards must understand the impact on future cashflows to manage these shifts correctly. This complexity increases for schemes with geographically diverse memberships, where mortality trends may vary significantly across different regions.
Related: LCA Review Finds iPhone 5 Divisive
Longevity hedging tools, such as longevity swaps, remain an important option for schemes not yet ready for buy-in. Many trustees are now exploring the novation of existing swaps into future buy-ins to maintain flexibility and protection against future mortality shifts. This approach allows funds to adapt to changing data without locking into a single path immediately.
While health innovations could still support longevity gains, the outcomes are far less predictable than historic models suggest. Uncertainty itself is becoming a key risk factor, as trustees operate in a more complex environment. Strong funding positions offer schemes some breathing room, but these can change quickly if members live longer than expected. Shifts in how long benefits must be paid can affect liability assumptions and the timing of derisking decisions.
For schemes that are transaction ready, buy-in will remain the most effective way to secure long-term certainty for members, trustees and sponsors. Strong funding positions offer schemes some breathing room, but these can change quickly if members live longer than expected. These trends can affect benefit duration, liability assumptions and the timing of derisking decisions, while increasing the complexity of modelling future outcomes, particularly for schemes with geographically diverse memberships.
