Life expectancy in the UK has flatlined in the past two years, according to the Office for National Statistics, with drops in the life expectancy of babies born in Scotland and Wales putting an end to decades of improving longevity.
People in a pension scheme tend to be a bit better off in retirement, and all the studies show that if you’ve got a bit more money you’re probably going to live a bit longer
Hugh Nolan, Spence & Partners
The slowing rate of improvements to life expectancy has already helped some defined benefit schemes shave substantial amounts off their liabilities – consultancy PwC last year showed that updating assumptions could wipe £310bn from balance sheets nationwide.
However, experts have urged caution over the news, suggesting that the specifics of scheme demographics are far more important than national trends.
Life expectancy at birth did not improve from the previous year for either males or females in the 2015-2017 dataset, the ONS found, staying at 79.2 and 82.9 years respectively.
The statistics agency found the same stagnation in adults. Aged 65, men can expect to live another 18.6 years on average, while females can expect another 20.9 years.
Source: ONS
In Scotland and Wales the story was even worse for individuals, with life expectancy at birth declining for both males and females.
Wealthy resist trend
While the news is a blow for those hoping for a 100-year life, it may have a positive impact on the funding levels of DB schemes if it feeds through into the pension-specific tables provided by the Continuous Mortality Investigation and used by most schemes.
However, it is not certain that the CMI tables will reflect the full impact of the ONS figures, owing to demographic differences.
“People in a pension scheme tend to be a bit better off in retirement, and all the studies show that if you’ve got a bit more money you’re probably going to live a bit longer,” said Hugh Nolan, director at Spence & Partners. “They don’t worry about putting the heating on in the winter and all that stuff.”
Wealthier savers also represent a disproportionate chunk of scheme liabilities, potentially offsetting the impact of faltering national longevity if they fare better.
Indeed, evidence suggests that wealthier savers are not facing the same phenomenon, according to Steven Baxter, head of research and development at longevity management service Club Vita.
“You might have around 70 per cent of the liabilities concentrated in the most affluent part of the population,” he said, urging schemes not to read too much into national trends. “They have been resilient to the slowdown at the national level.”
Will life expectancy grow again?
It is highly unlikely that humans have reached the final limit of their longevity, according to Club Vita’s Baxter.
But when this improvement is likely to kick in again depends on the cause of the slowdown. Three theories are commonly used to explain it:
Supply and demand – An ageing population puts increased strain on the health and social care services, at the same time as austerity cuts have reduced supply.
Frailty – Recent cold winters and hot summers have been difficult for the elderly and frail. This could be a short-term anomaly, or could be here to stay with climate change driving extreme weather.
‘End of an era’ – The rapid improvements of recent decades could be down to a marked decline in cardiovascular disease. Longevity improvements may flatline until a new medical advance, such as improved cancer screening and treatment, feeds into statistics.
Longevity is scheme-specific
Schemes can now pay for tailored analysis of the longevity expectations of their own membership, using factors like socioeconomic background, health and even postcode to predict life expectancy.
However, Nolan said that for smaller schemes in particular, costs may prove prohibitive, adding that for a small population end results can vary significantly even from a detailed statistical analysis.
Instead, he said many schemes would be well served by taking a prudent approach, checking that trends are well-established and relevant to their membership before adjusting assumptions.
“If you’re running a scheme that is full of factory workers who have a culture of still smoking, you’re going to want to put it down a bit,” he said.
Savers must not be complacent
Stagnant life expectancy also affects other areas of the pensions industry. While an update to the CMI tables might improve the rates offered by annuity providers, provider Aegon’s pensions director Steven Cameron also recognised a member communications issue.
Savers, who already have a tendency to underestimate their longevity, might assume that the declining national average mirrors their own chances of survival into old age.
“You’re planning for an income for an unknown period of time and it always makes sense to err on the side of caution,” he said.
Cameron also expected challenges to planned increases in the state pension age based on the figures.
