On the go: Life expectancies at age 65 are around five months lower for both males and females than they were a year ago, at 19.8 years and 22.4 years according to the Continuous Mortality Investigation. The figures come with caveats but are expected to cut £20bn from FTSE 350 defined benefit liabilities.
The CMI’s latest Mortality Projections Model, published on Thursday, suggests mortality improvements peaked some time ago with the highest improvements seen in 2004 for males and in 2006 for females.
The latest version uses data for calendar years 1978-2018 and has been adjusted to place more weight on the lower mortality improvements in recent years. The resulting lower estimates of current mortality improvements lead to lower cohort life expectancies.
There is a growing consensus in the industry that, while mortality will continue to improve, the rates of mortality improvement over the next decade will be slower than the very high rates of improvement seen in the first decade of this century.
Tim Gordon, chair, CMI Mortality Projections Committee, said: “It’s now widely accepted that mortality improvements in the general population since 2011 have been much lower than in the earlier part of this century. Average mortality improvements between 2000 and 2011 were typically over 2 per cent per year but have since fallen to around 0.5 per cent per year."
He said that reasons behind the slowdown and whether it will continue are unclear, but said there was increasing evidence that it could be “due to medium or long-term influences, rather than just short-term volatility”.
Stephen Caine, director in Willis Towers Watson’s retirement business and a longevity specialist, said the impact for DB schemes could be significant: “A six month reduction in life expectancy at 65 can knock around 2.5 per cent off the liabilities of a typical pension scheme – around £20bn for FTSE350 scheme sponsors as a whole. So the new model offers some respite for companies battling pension scheme deficits.
“Schemes with new valuations this year will typically be switching from CMI_2015 to CMI_2018, which could mean an even more material reduction in life expectancy at age 65, although the impact for any given scheme depends on a variety of factors.”
Steven Cameron, pensions director at Aegon, added: "While the life expectancy figures for males and females have fallen slightly again, they still show men age 65 will on average live till 87 and women to 89.
“Under pension freedoms, people are increasingly choosing flexibility, but in doing so taking on responsibility for using their pension pot across an unknown future lifespan. Taken together, it means people more than ever before need a realistic understanding of how long their retirement may last, and many will benefit from seeking advice."
