It is now widely accepted that rates of improvement in mortality have slowed, making longevity harder to predict for sponsors and trustees. As this change feeds into more affordable insurance pricing, many advisers are suggesting that pension schemes consider insuring their mortality risks via longevity swaps or buy-in contracts.
In this Insight, we question whether insurance pricing seems better value merely due to the high level of prudence in funding assumptions and highlight that the first focus for de-risking should be to tackle more significant, and potentially more costly, financial risks such as interest rate/inflation exposures and growth asset risks.