Jamie Funnell (of Pension Insurance Corporation), Chair of the CMI Annuities Committee, sets out the key findings of its analysis of the mortality and long-term care experience of equity release mortgage holders.
The CMI Annuities Committee has published our first analysis of the mortality and long-term care experience of equity release mortgages – covering 2016-2019 and 2020 – to CMI Subscribers in Working Paper 164. The paper also includes indicative graduations of equity release mortgage data but does not include analysis of voluntary early redemptions, which are out of scope for the analysis.
This is the first analysis of equity release mortgage experience by the CMI and is based on data collected from nine providers for the years 2016-2019 and 2020, including data from two large providers who make up a significant proportion of the dataset. In order to reduce the proportion of one provider, which was particularly dominant, we restricted the dataset to mortgages commencing in 2005 or later for all providers and applied an 80% weighting to the exposure and exits data for the largest provider. The weighting methodology is analogous to amounts weighting.
How do mortality rates for equity release mortgages compare with other populations?
As this is the first time we have analysed experience of equity release mortgages and we are not aware of any published mortality tables for these products, we were interested to see how mortality of mortgage holders would compare with other populations. We compared mortality experience with both annuitant mortality tables and UK population mortality tables and found that, at an overall level, experience for male equity release mortgage holders was similar to annuitants for the period 2016-2019 but lower than annuitants for females. Experience was considerably lower than population mortality for both male and female equity release mortgage holders. However, patterns by age band suggested significantly higher mortality at younger ages than seen for both annuitant tables and the general population, with mortality levels falling as age increases.
In addition to death, equity release mortgages can cease due to admission to long-term care. The volume of long-term care exits in our dataset was low, relative to deaths, and therefore we were only able to analyse these exits combined with mortality. We noted that long-term care exits were much more common for female mortgage holders than males, and that although the prevalence of long-term care admission increased for both genders with age, the increase was much more dramatic for females. This might be expected as females are more likely to live for longer, and/or to be a last survivor on a joint life policy by virtue of outliving their male counterpart, and hence have an increased chance of being recorded as a long-term care exit.
We were interested to note that, while mortality rates in 2020 were higher than in 2016-2019 for equity release mortgages, the increase was more modest than we have observed for annuitants or the general population. This may reflect the high number of care home deaths during the COVID-19 pandemic, which would not be represented in the equity release mortgage dataset, having left the dataset on entering long-term care prior to 2020. Additionally, long-term care admissions appear to have been lower in 2020 than in 2016-2019, which may be due to lack of availability or a reluctance to enter long-term care during the pandemic.
One interesting feature in the data was the differential in experience by age at which an equity release mortgage commenced. It appears that mortgages commencing at younger ages were associated with significantly higher mortality experience than mortgages commencing at older ages. This may reflect lifestyle or socioeconomic differences in the individuals taking out equity release mortgages in different age brackets.
As our equity release mortgage dataset is relatively immature (as this is a growing area of the market and our analysis was restricted to more recently commencing mortgages) it is difficult to say whether these differentials would continue as the younger mortgage holders age. We would be keen to explore this further, should the analysis be repeated in future.
The Committee is currently working on a review of the experience of the combined individual annuity dataset (both enhanced and standard annuities), which we hope to release soon. We are also currently collecting data for our annual analysis of pension annuities in payment, with analysis due to be released towards the end of the year, data permitting.
