The exercise limited the £278.7m scheme’s IAS 19 deficit growth to £9.7m, despite a marked drop in the discount rate used for the year to March.
Medically u nderwritten mortality studies, or MUMS, involve surveying members about their health to increase the accuracy of longevity assumptions. The number of members surveyed has increased dramatically in recent years.
Announcing its annual results in May, Hogg Robinson said the study had been a “valuable” exercise, in which it contacted 13 per cent of the membership, representing 39 per cent of liabilities.
“These members were asked to complete and return a health questionnaire and follow-up interviews were conducted where clarification was needed,” the report explained.
About two-thirds of those contacted responded to the survey, or 24 per cent of liabilities. Specialists then analysed the data and projected it into revised mortality assumptions.
“This valuable exercise contributed to a £68.4m benefit to the year-end accounting deficit, which largely offset a £96.7m increase in the UK scheme liabilities,” the report said.
MUMS on the rise
Members representing almost £1.5bn of liabilities were surveyed in 2016 by mortality specialists MorganAsh, an increase of 63 per cent on 2015.
Andrew Gething, managing director at the company, said most studies carried out by MorganAsh have resulted in liabilities falling, partly because they remove some of the need for prudence in mortality assumptions.
However, he accepted that schemes would only be likely to carry out a MUMS if they thought it would benefit their scheme’s balance sheet.
“Where people think [liabilities] might go up, they’re burying their head in the sand,” he said.
The buyout market responds
Gething said the immediate effect of reduced liabilities is to lessen the funding burden on sponsors, but that MUMS can also help employers insure their liabilities.
“Some companies say, ‘We want to know what the data is, and if we know that, we’re in a better position for going to buyout’,” he said.
Hogg Robinson said it has no immediate plans to move to buyout, but that the company has previously considered transferring its liabilities, and will continue to monitor the viability of bulk annuities.
However, the effects of mortality studies on buyout pricing are unclear.
“Especially if it’s something that you’ve done recently, then probably there will be insurers who wouldn’t be interested in quoting,” said Michael Anderson, a risk transfer specialist at consultancy Hymans Robertson. “Those that were would probably want to see that medical information.”
If unaware of the results of a MUMS, insurers risk accepting liabilities for very healthy members, at a price that does not reflect the risk of doing so.
Schemes might therefore only be able to get quotes from insurers who complete medically underwritten buyouts, a market Anderson said is “more limited” since Just Retirement and Partnership merged last year.
Managing the deficit
Improving mortality data can also have a significant impact on funding requirements, as evidenced by Hogg Robinson’s results.
However, Anderson warned that mortality data expires within three to five years. For a scheme to continue to suppress its liabilities, trustees must carry out further studies in the future, he said.
MUMS can also be inappropriate for larger schemes, where the health and lifestyle idiosyncrasies that affect certain postcodes or job titles may be averaged out by a diverse membership.
“In my experience, the medically underwritten approach is something that tends to be deployed for smaller groups of lives,” said Michael Chatterton, managing director at Law Debenture Pension Trustees.
Schemes may also look at medically underwritten buy-ins to ease funding pressures, he said, recalling a transaction in the aftermath of the pension freedoms that cost the scheme less than its technical provisions.