With trustees and employers looking to understand and reduce risks in final salary pension schemes, one area of increasing interest is mortality underwriting. This works particularly well for very small schemes where a generic average mortality table is less likely to apply.
By asking pension scheme members about their health, companies can underwrite mortality risk and achieve a better understanding of the future pension payments the scheme they sponsor will have to make. This in turn can inform decision making on scheme funding or other de-risking initiatives such as buying out.
Our approach to mortality underwriting uses telephone interviews, which we believe achieve more true results than a simple questionnaire. Our service includes
- designing all communications to members explaining the interview process and reason for the exercise;
- negotiating with the underwriters; and
- interpreting the results and impact they could have on the scheme.
The questions that members are asked are similar to that on an insurance policy proposal form. For example about height/weight, smoking and drinking habits and medical history. The interviews are done by medically trained staff and personal medical details are not passed back to the employer or the scheme so remain confidential. Not all members need to be assessed to form a view on the whole scheme and typically only those with the largest pensions, who are most financially significant, are invited to participate.
The results of the interviews allow our actuarial team to create a scheme specific view on the expected mortality and this is presented as an adjustment to the current assumed expectation of life in the scheme.