Vicky Webb (of Hannover Re), member of the CMI Annuities Committee, reflects on the key findings of their analysis of the mortality experience of pension annuities in payment in 2022.
The CMI Annuities Committee has recently released CMI Working Paper 186, presenting an analysis of pension annuities in payment mortality experience during 2022.
This represents a comprehensive analysis of the UK annuity market and a broad range of products from Internally and Externally vesting Individual annuities to Bulk annuities. More recently (since the analysis of 2021 data in Working Paper 172) we have started including Enhanced annuities in our analysis and have included buy-ins (in addition to pension buy-outs) within our Bulk annuity data.
We continue to be grateful to our data contributors who provide data and make it possible for us to provide such a comprehensive analysis.
Alongside the paper, we have also published a spreadsheet containing underlying values for charts, datasheets to allow users to produce alternative comparisons and an interactive data visualisation in Tableau to aid interpreting the results.
2022 started out looking like population mortality was beginning to return to normal levels after the pandemic years. However, we did not see the typical decline in mortality during the summer months seen prior to the pandemic, and this was followed by periods of excess mortality over the autumn and particularly in December. There are multiple factors that may have contributed to this change, such as the pressures on the NHS, COVID and long COVID, as well as record-breaking temperatures in England over the summer leading to excess deaths over that period.
This led the Annuities Committee to do an ‘accelerated’ analysis of the 2022 data (Working Paper 178 published in September 2023) as we felt that this would be of interest for annuity writers trying to make sense of the excess mortality drivers in 2022 and considering how to set assumptions for the future.
The accelerated analysis was based on data from six regular contributors who were able to provide data to accelerated timelines and included Individual and Bulk annuities covering ages 65 – 95. We found that annuitants were somewhat protected from excess mortality in 2022; SMRs for annuitants were 3.2% higher than corresponding figure in 2019, compared to SMRs for the England and Wales population which were 5.7% higher than in 2019.
In Working Paper 186, we turn our focus to our ‘traditional’ regular analysis with our complete dataset from all contributors, including one new contributor who provided data for the first time.
As we look to the future, we hope users will find it useful to re-examine some of the varied and fascinating features of the annuities dataset and to see how experience is developing, so they can consider the implications for the future of the market.
We tend to observe a lot of diversity in experience by product type and this is illustrated in the historic decision of the Annuities Committee to produce product-specific tables in the “16” Series – specifically for Individual Internal annuities, Individual External annuities and Pension Buy-out business. In addition, in Working Paper 155 we published analysis of Enhanced annuities alongside indicative rates, although no formal tables were published.
Most, if not all of the previously observed data features and patterns in experience by product are still present in the 2022 dataset. Some key features include:
It is important to consider the context for changes in experience within the annuities market. For Individual annuities, we saw the end of compulsory annuitisation, following the 2014 Budget, and separately the growth in the enhanced annuity market in recent years has a knock-on impact on the profile of annuitants who have not sought or received an enhancement. The Committee consider the development of the market when analysing experience and carried out some initial analysis of the impact of pensions freedoms in Working Paper 164 as well as analysis of enhanced and standard individual annuities.
Most of the results in this paper compare actual deaths by age and gender with those expected using the “16” Series tables. For both genders, 2022 experience had a downward shape as age increases.
This is a feature that has been noticed in previous analysis where we have “greater divergence from the “16” Series rates at both younger and older ages; in both cases these arise from our decisions to trend the graduated rates towards population mortality experience instead of using the limited volumes of available data”. Similar observations around the experience at younger and older ages still hold for the 2022 dataset.
In addition, low experience at the oldest ages may be a consequence of under-reporting of deaths at the advanced ages.
Overall mortality experience of the 2022 annuity dataset is lighter than at the height of the COVID-19 pandemic, although it remains heavier than we would have seen if mortality improvements anticipated prior to the pandemic had occurred.
It is still early days to consider how mortality rates will develop under a “new normal” beyond the peak of the pandemic. The Committee eagerly anticipates our analysis of 2023 data, which will kick off later this year.
Looking ahead, the Annuities Committee will continue to publish our annual updates on the experience of pension annuities in payment. Over the next few years, the Committee also intend to turn our attention to more detailed analysis of bulk annuity experience and an in-depth socio-economic analysis, using the Index of Multiple Deprivation measure. Alongside this, we will continue to monitor the ongoing impact of the COVID-19 pandemic and excess deaths in the annuitant population.
