UK companies could be overstating their pension liabilities by up to £45bn if they fail to take account of the full health impacts of the coronavirus pandemic, research from XPS Pensions Group has suggested.

As reported by our sister title, Pensions Age, the analysis showed that while Covid-19 has had a detrimental effect on short-term mortality rates, it has also had wider health and economic implications, which are expected to slow the rates of improvement to overall life expectancy.

In particular, the research showed that, amongst 70 XPS clients, pension liabilities had been reduced by between 1.5 per cent and 3.5 per cent as a result of the pandemic, with this variation dependent on the demographic of schemes.

In light of this, XPS suggested that British companies may be overestimating their liabilities by a combined £45bn, if these assumptions are representative of overstated liabilities across the UK pensions industry.

XPS Pensions Group head of corporate accounting, Simon Reddish, said: “As Covid-19 becomes endemic, it’s vital that schemes are reflecting the latest research and data about how this it is affecting the population in their liability estimates.

“As we learn to live with the disease, schemes will have to do the work to make accounting for Covid in their balance sheets a routine.”

XPS Pensions Group head of demographics, Dan Auton, added: “Successive lockdowns have had a notable toll on the population’s mental health and lifestyle, with general health suffering as a result.

“And the pandemic’s second-order effects – such as increased pressures on the NHS and a reduction in cancer diagnoses and treatments – are likely to continue to have an impact as potentially dangerous variants of the virus continue to emerge.

“This means that the government’s promised additional NHS and social care funding is likely only to mitigate the impact the pandemic has had on the health care system, rather than act to boost future life expectancies.

“These factors will continue to reduce the rate of improvement in life expectancies compared to expectations pre-pandemic.”

Pension schemes have previously been urged to consider future mortality assumptions amid the long-term mortality legacy of Covid-19, after research suggested that this is likely to far outlast the pandemic itself.

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