UK actuaries see longer lives in retirement
UK – The Institute of Actuaries says life expectancy in the UK is likely to increase rapidly in the early part of this century – and that future pension scheme design should reflect this.
“The analysis of underlying trends suggests that life expectancy in retirement in the UK is likely to increase rapidly in the early part of the 21st century,” said a report from the institute.
“Taken together, future increases in life expectancy, increasing awareness of the risk of providing longevity insurance, changes in legislation and shortages in market capacity and capital, may well lead to worsening annuity rates,” the 148-page ‘Longevity in the 21st Century’ stated.
The news comes as the Treasury confirmed that pension funds, consultants and other industry figures would attend a pension ‘summit’ at the end of March, chaired by Ruth Kelly, the Chief Secretary to the Treasury.
“It is difficult to assess the precise impact of future changes in life expectancy on final salary pension schemes,” the actuaries’ report said. Citing a “lack of readily available information”, it called for more disclosure of the mortality assumptions used.
“Employers sponsoring final salary schemes are making promises to their employees that extend up to 70 or 80 years into the future.”
“Actuaries should be clear in spelling out to employers and trustees the nature of the risks behind the promises they are making. Future scheme design should reflect the possibility of substantial increases in life expectancy.
“The age at which people retire will inevitably have to increase and this trend will necessarily drive changes in all aspects of our society.
The paper says there is “incontrovertible evidence” of a step change in longevity visible for those born between 1925 and 1945.
"There has been much speculation recently about the major implications of increased longevity on key financial areas such as life and pensions.
“There can be no doubt that older people are living longer and that post-retirement life expectancy is likely to increase sharply in the coming decades,” said research group chairman Richard Willets of Willetts consulting.
"However, there is no certainty that their children and grandchildren will see a similar, continuing, improvement.”