Club Vita Proper noun, [kluhb vee-tuh]

Transcription

1 Club Vita Proper noun, [kluhb vee-tuh] 1. UK-based centre of excellence for improving understanding of human longevity. 2. Community of organisations with a shared interest in longevity and belief that the bigger the data, the lower the (statistical) noise. 3. Provider of longevity risk informatics to support pension funds risk management strategies and enable market innovation.

2 Taking control of longevity risk Welcome to Club Vita, a unique collaboration across the UK pension industry, designed to help you and other trustees proactively manage the uncertainty of how long your pensions will be in payment. Longevity improvement has been one of our nation s great successes of recent decades, with sharp falls in the number of early deaths. But recent news headlines have been mixed, causing confusing, even contradictory, messages. Club Vita puts trustees in control of managing longevity uncertainty, by providing relevant, granular data on longevity patterns and trends, not advice. Our dataset, the best in its class, pools data from over 220 UK defined benefit pension schemes. It offers unparalleled insights into life expectancy, enabling better, data-driven decisions. We propose taking a journey to confident, data-driven, longevity decisions in six manageable steps. To find out more please visit We would also love to hear from you on our Friends of Club Vita discussion forum on LinkedIn bringing together like-minded individuals and organisations with a shared common interest in longevity. Please get in touch if you d like to join. Douglas Anderson Founder of Club Vita T: douglas.anderson@clubvita.co.uk 1

3 VitalStatistics Track record Since our launch in 2008, Club Vita membership has grown to include over 220 leading UK defined benefit pension schemes, with over 300bn of liabilities. Deep cleansing Over the last year, our checks on those aged 85+ have identified almost 800 pensioners who are believed to have passed away, with annual pensions totalling 3.5m. We also correct postcodes on around 5% of records so that we have postcodes for around 95% of records the rest are largely explained by pensioners living abroad. Diversity We hold pensioner data across all industries, with 2/3 from the private sector. We also hold pre-retirement salary figures for 70% of pensioners. Club Vita s granular socio-economic data is more than 10 times larger than the ONS s corresponding analysis (which is based on a 1% sample of the population). Whether you re new to Club Vita, or you ve come across us before, our VitalStatistics reveal how we ve matured as we approach our 10th birthday. Professional relationships Annual data extracts received from 12 different administrators. Contract reviewed by at least 12 different law firms over last 10 years. Backward reach Records cover over 1.4m deceased pensioners, stretching back to early 1990s (when cheap electronic data storage changed administrators working practices). Split of schemes in VitaBank Local Authority 29% Government 1% 4% Miscellaneous Oil & Gas Performance gain By setting more accurate assumptions, the last 35 schemes to join Club Vita have benefitted from an average 1% reduction to liabilities. There s an estimated 25bn gain available to UK DB schemes yet to benefit from Club Vita. You can read more on this here. Sample size Records on over 2.7m living UK pensioners, equating to 1 in 4 pensioners from defined benefit pension schemes or 1 in 7 of UK s retired population. 1% 2% Basic Materials Industrials 15% 10% Consumer Goods Industry adoption Whilst Hymans Robertson founded Club Vita, today 40% of pensioners in Club Vita receive actuarial advice from a range of other actuarial advisors. Our VitaCurves model is used by 7 out of 10 longevity reinsurers. Since the first swap longevity transaction in 2009, Club Vita s insights have helped 20 schemes to insure around 40bn of longevity risk, giving both sides the confidence that they have an attractive trade. Relevant + Flexible + Quality + Size = Best in class data 3% 8% Technology Financials 16% 11% Consumer Services 2 Utilities Source: Analysis of number of schemes in VitaBank, February 2017

4 Data-driven decisions Assumptions about future longevity affect many decisions on the trustees agenda, with longevity overlapping the professional domains of the administrator, actuary and investment advisor Unlike insurance companies, pension funds can t net off their longevity risk against mortality risk on life insurance policies. This lack of a natural hedge makes trustees anxious about how best to secure members future benefits. A proactive strategy for managing longevity risk is clearly desirable. But, until recently, reliable, relevant data hasn t been available. Club Vita s extensive dataset and unique longevity tools help trustees manage the peculiar characteristics of longevity risk in a disciplined way. We enable your data alongside that from like-minded peers in the industry to do the talking. The pooling of data helps all schemes - big or small, private or public sector, white or blue collar - to clearly see the signals in longevity trends in place of statistical noise. Our annual reporting enables objective, independent oversight of your actuary s funding recommendations, judging whether the confidence of your investment advisor in hedging future expenditure is justified or misplaced, and even helping you offer fair transfer values. Club Vita will help you take control of longevity risk, making more confident, strategic decisions, rooted in hard data. We propose six steps in our journey to data-driven decisions: 1 Building solid data foundations Clubbing together Nailing down your baseline Stressing the subjective 3 Club Vita s market leading longevity analytics gave the trustees great confidence in assessing both the value of the transactions and the amount of longevity risk that has been successfully removed from the scheme. Graham Laughland, Chair of trustees for the Scottish Hydro-Electric Pension Scheme 5 6 The price of certainty Monitoring against your plan

5 1 Data-driven decisions Building solid data foundations Monthly death rates from January 1994 to December 2016 Number of deaths per month Jan 1994 Jan 1997 Jan 2000 Jan 2003 Jan 2006 Jan 2009 Jan 2012 Jan 2015 Pensioner deaths (inc. widow(er)s) 16,000 14,400 12,800 11,200 9,600 8,000 6,400 4,800 3,200 1,600 Pensioner membership (inc widow(er)s) 0 Number of pensioners and dependants As the old IT adage goes garbage in, garbage out. This fundamental law of informatics certainly applies to the statistical analysis of longevity patterns. Strong data foundations are crucial to confidently draw inferences from the analysis. Pension scheme administration records are well suited to longevity analysis because figures on living and deceased people come from the same source. That sounds like an obvious requirement, but it s not true of ONS data, which is commonly used to calibrate the CMI trend model. We understand that pension fund records are not always perfect, particularly archived records for deceased members. Our smart VitaCleansing processes have been designed to only use reliable bits of data whilst also avoiding statistical bias. For example, one check, illustrated in the chart opposite, compares the number of historical deaths in each month (purple line) with the number of alive pensioners (green line). In this example scheme, some deaths before the year 2001 appear to be missing, but the number of deaths from 2001 onwards is broadly consistent with the number of alive pensioners. Each year we feed back the recommended changes to your administrators so the quality of your records improves, leaving you in better shape for any future risk transfer to an insurer. Source: Club Vita analysis for an example scheme 4 Data drives pricing Hamish Watson of Scottish Power, reflecting on his learnings from procuring a longevity hedge

6 2 Data-driven decisions Clubbing together The law of large numbers is your best friend. Group Longevity turbulence Annualised mortality improvement (age-standardised) England & Wales 2.8% (± 0.1%) 2.8% (± 0.1%) 1.1% (± 0.1%) Club Vita 2.4% (± 0.5%) 2.8% (± 0.3%) 1.3% (± 0.4%) Comfortable 2.4% (± 1.1%) 2.1% (± 0.8%) 2.1% (± 0.7%) Making-do 2.2% (± 0.8%) 3.2% (± 0.5%) 0.9% (± 0.6%) Hard-pressed 2.5% (± 0.7%) 2.9% (± 0.5%) 1.0% (± 0.6%) Source: Club Vita analysis for men for PLSA longevity trends report 2017 Austerity policies? To see survival patterns change over time, data from even the largest pension schemes in isolation is not nearly enough. The diversity of survival patterns between different types of people blurs any signal. Club Vita s data architecture combines records from over 220 defined benefit schemes in a structured, flexible and safe way. This lets us group together similar people who would be expected to follow similar lifestyles, releasing the data s latent power. Our research on improvements trends by socio-economic groups in collaboration with the PLSA is a powerful example of like-minded schemes clubbing together to benefit from the sum of the parts. Particularly large volumes of consistent data are required to spot variations in the rate of change over time the biggest longevity risk for most schemes. You can read the full report here. This year s data enabled us to spot a sharp change in trend in the last 5 years, as shown in the table opposite. The fall in death rates in the Comfortable VitaSegment continues at around 2% a year, whilst the falls in the Making-do and Hard-pressed VitaSegments have slowed sharply. The figures for the national population (England & Wales) give equal weight to all people, but 70% of schemes liabilities are in the Comfortable VitaSegment. This highlights the risk of reading too much into the newspaper headlines derived from blunt national population statistics on the rising number of deaths in the whole population. 5 Aviva s staff pension scheme is proud to have been amongst the founding members of Club Vita. Its fresh insights have grown Aviva s confidence in navigating a path through the diversity and uncertainty of longevity patterns. John Lister, former Chief Financial Officer of Aviva UK By joining Club Vita, you are not only enabling your scheme to calibrate your improvement assumptions against relevant data, but you are helping to improve the security of members benefits across our industry. SEGMENTS

7 3 Data-driven decisions Nailing down your baseline Proportion of members with different life expectancies from age 65 The next stage of your journey to data-driven longevity decisions involves dividing up your longevity assumptions into two components. By separating recently observed death rates on similar people to yours (what we call baseline ) from trends over time (also known as improvements ), you nail down the objective, measurable part of your assumption. Having done this, you can spend more time on managing the uncertainty of trends. 30% 25% Men Women Club Vita s VitaCurves model is not the only postcode-based model used by pension actuaries, but we are confident that it s the best in its class. Our confidence is based on: Proportion of members 20% 15% 10% the 10 year wide spectrum of life expectancy assumptions that flows from interaction of both salary and postcode, giving a two-dimensional map of affluence and lifestyle; the independent evaluations of employee benefit consultancies who are building VitaCurves into their advisory processes; and 5% the feedback from insurers and reinsurers, who are increasingly adopting the VitaCurves model as a common currency to enable them to price schemes more efficiently. 0% Period life expectancy from age 65 Source: Club Vita analysis for an example scheme, 2017 A postcode based model is crucial for small schemes who don t have enough historical data on which to adjust the national average. It s also a core requirement for large schemes whose demographic profiles have changed across the generations, where past experience would not be a good guide to the future. Club Vita deserves credit for changing the market by providing mortality information in a way that makes trustees feel able to make informed decisions about longevity assumptions, rather than simply accepting their actuary s proposals. 6 Huw Evans, Trustee Executive, BESTrustees plc

8 4 Data-driven decisions Stressing the subjective Actuaries typically use models that extrapolate past statistical trends when projecting future pension scheme expenditure. They face two big challenges: How to calibrate these models, when the past is not necessarily a good guide to the future? Given that you will inevitably end up choosing a single projection for your funding strategy, how much confidence do you have that the actual costs will not be higher? So how can trustees take an informed view on the reasonableness of your actuary s recommendation? And how much retained risk does the actuary s recommendation imply? Club Vita uses stress-testing techniques to help trustees visualise how their pension promises would react under a series of different scenarios, relative to their actuary s recommendation and a statistical simulation model (purple line in chart opposite). Our scenarios simulate how future survival rates change under alternative outcomes for future healthcare and economic prosperity. The chart opposite shows the impact of these scenarios on the capital value of future obligations for a sample scheme. This discipline quantifies the scale of uncertainty in future trends, letting you assess the level of prudence in your actuary s recommendation for longevity trends. Similar techniques are used by insurers in their internal governance. 7 Longevity is not simply an assumption, but a real risk. Having hard evidence to negotiate assumptions with Actuaries, or terms with providers, adds real value. John Chilman, Chairman of the Railways Pension Trustee Company

9 5 Data-driven decisions The price of certainty Longevity risk can, like many risks, be managed in one of four ways. Since 2009, around 40 large UK defined benefit pension schemes have started to reduce their exposure to longevity risk through longevity swaps. This transfers the longevity element to the reinsurance market, whilst the scheme retains control of the assets. This option is now also practical for schemes with 50m to 750m of pensioner liabilities. Insurers are more willing to offer competitive pricing to smaller schemes through improved data, and contracts are becoming more standardised so that hefty legal bills can be avoided. Tolerate Continue unchanged Accept effect on sponsor contributions Treat Raise pension age Cease accrual Our VitaHedge service offers a convenient and cost-effective way of getting a tailored indicative market price for a longevity swap. VitaHedge is supported by four leading longevity insurers who update their pricing assumptions every quarter. This facility is opening up the possibility of longevity risk hedging for smaller schemes for the first time. Pensioner longevity swap price and risk metrics Transfer Swap actual expenditure for fixed cashflows Buy-in for largest pensions Terminate Wind up scheme and pay buy-out cost Transactable price -20% -15% -10% -5% 0% 5% 10% 15% 20% Technical provisions 1 in 10 risk 1 in 100 risk 2% 7% 17% Liabilities relative to technical provisions Source: ClubVita VitaHedge analysis for example scheme, Club Vita s service to pension funds is helping make longevity insurance available to pension schemes of all sizes at a sensible price. Kerrigan Procter, CEO, L&G Retirement Your scheme receives a tailored VitaHedge indicative price on supply of your annual data. This price is readily compared with your reserving basis, giving you a market-based measure of the risk premium that you would have to pay to reduce your exposure to longevity risk. HEDGE

10 6 Data-driven decisions Monitoring against your plan Scheme experience over three years to 31 March 2016 split by age group (All types of pensioner) Actual death amounts Expected death amounts (based upon trustees' funding basis) Actual vs expected deaths % The final and crucial part of your plan for managing longevity risk will be keeping an eye on emerging events. Even if you decide to transfer your pensioners longevity risk, you will retain uncertainty for younger members who have most time to benefit from health breakthroughs. Our annual VitaMonitor report is designed to support trustees annual review of the emerging evidence. It includes: analysis of your scheme s experience against your assumptions, using charts like the one opposite; Amount of annual pension ceasing ( 000s) % 240% 210% 180% 150% 120% 90% 60% 30% Actual vs expected deaths statistical trends in the whole dataset (in the VitaSegment s socio-economic groups); illustrations of the sensitivity of your scheme s liabilities to our latest calibrations of your health scenarios; your latest VitaHedge indicative price for longevity insurance; and commentary on emerging health innovations and public health developments in the longevity pipeline Age bands 0% Club Vita s insights help you maintain and refine risk management plans that are tailored to your scheme s needs, enabling better, data-driven decisions. Source: Club Vita scheme experience analysis for example scheme, 2016 You, and all other subscribers, enjoy the mutual benefits of schemes contributing data updates annually. Club Vita s market leading longevity analysis and the insurance company s competitive price has allowed the Fund to remove this risk at a cost close to our technical provisions reserves a great outcome for everyone associated with the Fund. 9 David Illingworth, Chair of Trustees, Institute of Chartered Accountants Staff Pensions Fund

11 We d be delighted to welcome you to our Friends of Club Vita discussion group on LinkedIn. Here you can share your longevity insights and join the discussion with your peers. Please get in touch if you d like to join. To find out more visit If you d like to know more about how your scheme could benefit from Club Vita, please get in touch. Douglas Anderson Founder of Club Vita T: douglas.anderson@clubvita.co.uk Erik Pickett Longevity Consultant T: erik.pickett@clubvita.co.uk 10

12 CLUB VITA LLP One London Wall London EC2Y 5EA T F Club Vita LLP is an appointed representative of Hymans Robertson LLP, which is authorised and regulated by the Financial Conduct Authority and Licensed by the Institute and Faculty of Actuaries for a range of investment business activities.