21 Jan 2021 3 min read

COVID-19, mortality expectations, and the market implications

By Ben Bennett

Long-term investors like pension funds need to consider a host of complex dynamics when analysing the impact of the pandemic.


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A few years ago, I was talking to one of Legal & General’s experts about the impact of climate change on mortality. Interestingly, he believed the biggest driver of mortality rates was likely to be economic growth rather than the direct health consequences of extreme weather.

This makes sense if you think about it: richer countries can run well-funded health systems staffed by highly trained professionals, while having more money often puts you in a better position to live longer. The surprising conclusion is therefore that future mortality is less dependent on how climate change impacts seasonal flu, for example, and more sensitive to how economies struggle with the weight of the energy transition.

I therefore read with great interest November’s Longevity Bulletin from the Institute and Faculty of Actuaries. It highlighted this very same point for COVID-19: there could be a material future reduction in life expectancy as a result of pandemic-related economic weakness.

Of course, many countries are opening up their fiscal wallets to offset economic hardship and reduce scarring, which should mitigate the impact to some degree. But the Longevity Bulletin also identifies other ways that COVID-19 could lead to reduced life expectancy over the long term.

For example, NHS England reported a 60% reduction in urgent cancer referrals in April 2020 compared with April 2019, while Cancer Research UK estimated that disruptions to cancer screening could be resulting in 2,300 cases being missed each week. And then there’s the impact that deteriorating mental health can have on physical health.


There are some areas where the mortality implications could be mixed: behavioural and societal impacts, for example. Indeed, we’ve noted that COVID-related social distancing measures may significantly reduce the spread of flu. But it’s clear to the authors that the net medium-term impact of ‘long COVID’ is to reduce life expectancy compared with a world absent the pandemic.

I think this reveals the complexity of the decisions facing politicians in recent months, balancing containing the virus with managing the economic disruption, while also trying to keep hospitals open for non-COVID related services. It’s easy for people to see the initial results of these decisions on mortality, but the long-term implications may be more important.

From an investment point of view, there’s therefore a possibility that the mortality implications of COVID-19 are being underestimated by some pension funds. Such investors buy long-dated nominal and inflation-linked bonds to match their pension liabilities, helping to keep yields pinned down in countries like the UK. It’s impossible to quantify, but deteriorating mortality expectancies could require less bond hedging, and some of this yield pressure could be alleviated. Indeed, pension schemes could therefore be a bit better funded, and reduce their allocation to equities or even corporate bonds.

The magnitude of this impact is very uncertain given that actuaries will need time to assess the situation accurately. In the meantime, markets are likely to be driven by the economic reopening and the near-term outlook for monetary and fiscal policy. But we can be reasonably sure that the mortality and market implications of the COVID-19 pandemic will be felt long after the global population is inoculated.

Ben Bennett

Head of Investment Strategy, Asia

Ben focuses on investment ideas and themes. He spends a lot of time on the 4Ds of fixed income investing: debt, deficits, demographics and deflation. This might be more than a little influenced by his first-hand experience of a credit crisis, having joined us from Lehman Brothers in 2008.

Ben Bennett