How have annuitants fared in the pandemic?

Data passing through computer screen

Jamie Funnell (of Pension Insurance Corporation), Chair of the CMI Annuities Committee, sets out the key findings of our analysis of the mortality experience of pension annuities in payment through 2020 and the first half of 2021.

The CMI Annuities Committee has published our annual analysis of the mortality experience of pension annuities in payment data – covering 2020 (with comparisons to 2016-2019) – to CMI Subscribers in Working Paper 161. The paper also includes indicative analysis of experience for the first six months of 2021 – as part of the paper’s analysis of how the COVID-19 pandemic has affected the CMI’s annuities dataset.

What is different about 2020?

Our annual experience updates on the CMI’s annuities dataset usually cover a four-year period, moving on one year each time. However, the COVID-19 pandemic, which started to take hold in the UK in April 2020, meant that we expected experience in 2020 to be significantly different from that of the previous three years, as we have seen with population mortality. We have therefore focused on calendar year 2020 on its own, with analysis of 2016-2019 shown for comparison.

How did 2020 compare with annuitant mortality tables and with 2016-2019?

We compared actual deaths in the annuity dataset by age and gender with those expected using the “16” Series pension annuity in payment tables, based on data for annuities in 2015-2018, adjusted for improvements in general population mortality experience using the Core version of CMI_2020. We note that using different parameters for CMI_2020 would have produced different results although the results are unaffected by the choice of long-term rate.

As might be expected, experience in 2020 for the overall dataset was heavier (i.e. more deaths) than anticipated by the projected “16” Series tables for all age groups with a reasonable volume of data (typically around ages 60-89). This is in contrast to experience of 2016-2019, which was generally very similar to the projected “16” Series tables. For both 2016-2019 and 2020, at the oldest ages, experience was lighter, relative to the tables, and at younger ages, it was significantly heavier. This reflects decisions made about the desired shape of the ”16” Series tables, when those were produced, rather than a change in the features of the annuities dataset.

For males, experience at key ages was 10% to 15% heavier than the projected “16” Series tables, while for females experience was generally 5% to 10% heavier, for the overall dataset, suggesting that male annuitants in our dataset were more severely affected by the COVID-19 pandemic than females.

We also looked at the experience of a number of sub-groups of the annuities dataset and mostly found similar conclusions, with experience in 2020 being significantly heavier than in 2016-2019 and males generally worse hit than females.

Where does 2021 data fit in?

Some of the insurance companies who contribute data to the Annuities Investigation were also able to provide data for the first half of 2021, when a further peak in COVID-19 deaths was seen at population level, so we also carried out analysis of this period. There is greater uncertainty in the 2021 analysis for several reasons. For example, the 2021 dataset includes a smaller group of insurers than our other areas of analysis, and data was collected quite soon after 30 June 2021, meaning that a significant number of deaths might be missing having not yet been reported to the insurer. We make allowance for missing deaths due to late reporting in this paper for each year from 2016 onwards, but the 2021 data includes the largest adjustment (as we expect older years to be more complete) making it most sensitive to our allowance for late-reporting.

How did the COVID-19 waves hit the CMI’s annuitant population?

The paper includes analysis of experience for 2020 and the first half of 2021, by calendar month, compared with 2019, as the last “normal” year before the pandemic. This allows us to dig deeper and see whether the experience of 2020 and 2021 follows a similar pattern to population mortality for England & Wales. This analysis focuses on Standardised Mortality Rates (SMRs), which makes allowance for differences in the age profile when comparing different years or different populations. We also look at relative excess mortality, a measure that allows us to compare how extreme the experience in 2020 and 2021 has been relative to 2019.

Although underlying levels of mortality are different, with annuitants experiencing lower death rates than the general population, the waves of Covid-19 pandemic hit the CMI’s annuitant population in a very similar way to the England & Wales population. Both datasets experienced a sharp rise in SMRs in April 2020, which fell away quickly, with a slightly higher than average figure in May and a return to normal levels from June. Mortality levels remained broadly in line with 2019 until October 2020, before the SMRs started to increase again heading towards a second peak in January 2021. Finally, mortality returned to normal levels (and even slightly below normal levels) from March 2021.

Relative excess mortality for the annuitant population was similar to that of the England & Wales population in 2020, suggesting that the COVID-19 pandemic had a similar impact on each population at overall level in that year. In 2021, relative excess mortality was significantly lower for annuitants than for the England & Wales population although there is some uncertainty in this result for the reasons outlined above and, in more detail, in the paper.

What will the Annuities Committee be doing next?

The Committee next intends to analyse mortality and long-term care experience data under Equity Release Mortgages, the first analysis of its kind for the CMI. This analysis is due to be published in June 2022.

Looking further ahead, we intend to:

  • review the experience of the combined individual annuity dataset (both enhanced and standard annuities) in autumn 2022.
  • seek views on the frequency and timing of future data collection and analysis of enhanced annuities.
  • update our annual analysis of pension annuities in payment including, data permitting, analysis of buy-in business, in late 2022.