Posts Tagged ‘Longevity’

Hugh Nolan

The Government recently announced that the State Pension Age will increase to 68 in 2037 – seven years earlier then planned. This may seem odd given current news about longevity improvements slowing down but it actually makes perfect sense.

The first State Pension in the UK was introduced in 1908 and paid the 25% of people who reached age 70 for an average of 9 years. The Basic State Pension came in from 1948 and allowed people to retire at 65, with a life expectancy of 12 years. But, by 2014 this had risen to 21 years (for men) so it’s no wonder that something had to give. Read more »

David Bogle

Spence & Partners, the UK pension actuaries and administration specialists, today shared its concerns that with figures from the ONS* showing newborn female babies are expected to live to 93, and male babies to at least 90, if pension savers don’t fully understand longevity risk (that they will outlive the funds in their pension pot) when planning their savings, they may be facing a long and financially difficult retirement.

David Bogle, Mortality Expert, Spence & Partners said: “People need to start understanding how their retirement prospects will be impacted by uncertainty around their own life expectancy. Research published last week by the Office of National Statistics (ONS) projected that in 50 years’ time newborns in the UK will be expected to live past 97 – life expectancy has vastly increased since previous generations, and this underlines the importance of fully understanding our own longevity risk and ensuring we are putting enough money aside. Unfortunately we just don’t expect to live as long as we will, and it is crucial that this is factored in to everyone’s retirement planning.” Read more »

Valerie Hartley

When you wake up on Christmas morning, the last thing you would ever expect to be gift wrapped under the Christmas tree would be a pension.  Having said that, if over the coming years you didn’t fund towards a pension, then Christmases after retirement might be pretty much a non-event in terms of what lies beneath the tree not to mention the size of your turkey.

I guess the pension stigma still remains, in so much that funding for your retirement is way down the list of priorities.  Many have yet to give any consideration to a pension, not to mention the on-going bad press surrounding the word ‘pension’.  Read more »


Spence and Partners are delighted to host a perspective of the age discrimination case of Seldon vs Clarkson Wright & Jakes by Burness solicitor Jennifer Skeoch. The case considers the issues of enforcing retirement on employees when they reach the age of 65.

On 25th April 2012, the Supreme Court handed down an eagerly awaited judgment in the case of Seldon -v- Clarkson Wright & Jakes. The headline news is that the Supreme Court dismissed Mr Seldon’s appeal and, in doing so, confirmed that a mandatory retirement age contained in the law firm’s partnership agreement could be objectively justified. Read more »

David Davison

I’ve seen a number of exercises recently which have looked to model potential scheme mortality costs in relation to the quality of health of the scheme membership. The rationale is that certain employers may have a workforce which is likely to be in poorer health and therefore have a lower life expectancy than might be assumed as ‘standard’. This can then be used as a basis to adjust the mortality assumptions and therefore reduce liabilities, deficit and ultimately costs.

Whilst the results of these exercises are often illuminating I would seek to add a note of caution to the process and those considering such a review need to consider the positives and negatives. Read more »

Alan Collins

If asked about my political views, liberal is not a word that would ever feature in my response. No subscription to the Guardian newspaper here.

However, on reading the discussion paper from Philip Booth and Corin Taylor for the Institute of Economic Affairs (IEA) on “How the older generation should suffer its share of the cuts”, I have had to reassess my thoughts on the virtues of beard growing and sandals.

In short, the paper recommends the abolition of a number of benefits currently provided to older people, namely

  • Certain non-cash benefits (free bus travel, free TV licences and the winter fuel allowance);
  • Married couples allowance for older people;
  • The age adjusted tax-free income allowance; and
  • The earnings link to state pensions (which hasn’t even been re-introduced yet!);

The paper also recommends the state pension age is increased to 66 in 2015, a reduction in public sector pension contributions and an accrual rate of 1/45th for future build up of state pension entitlement. Wow – don’t hold back now guys, say what you really think!

Given the need to reduce the national debt, it is right that ancillary benefits paid to pensioners such as free bus travel and free TV licences come under scrutiny. However, it is unlikely that a government of any persuasion is likely to threaten the winter fuel allowance.

I welcomed the proposal in October 2010 to consider a universal state pension of around £140 per week and so would view the proposed use of an accrual system to be a retrograde step.

The comments on the triple lock of increases applying to the state pension seem flawed. Firstly, the price inflation element of the lock changes to CPI from 2012, which is expected to be less valuable than RPI. This fact seems to have been missed, though it does not appear to affect the estimated cost saving.

The estimated cost saving on excluding the link to earnings also assumes wage growth of 2.5% per annum above inflation, which is certainly higher than I would expect – therefore the saving is likely to be significantly less than the reported £5.6 billion per annum.

Some of the other figures seemed to have been produced like a rabbit out of a hat. For example, apparently a conservative estimate of the annual saving on increasing the state pension age to 66 by 2015 would be about £5 billion – this figure is provided without any justification.

The paper does make some bold suggestions in the pensions arena which are certainly worthy of further consideration. Firstly that the full costs of all pension promises should be revealed. I agree that the current cost is being pulled down by over optimistic assumptions about future investment return and await with interest the release of Lord Hutton’s report on 10 March. The removal of final salary linkage is not enough to stem the tide of rising costs and any move to Career Average accrual is only postponing more difficult decisions for a later date.

Secondly, the paper recommends that individual organisations and councils are allowed to negotiate individual pension arrangements with their employees. This would certainly test the value of pension provision – how much more salary would a public sector employer be prepared to offer in return for lower pension contributions? If NEST is enough, then why shouldn’t organisations be allowed to offer more salary in return for lower pension contributions?

In times of economic difficulty, it would seem that suggestions on how to save money are becoming more aggressive. And I am all for a bit of debate, I just think the debates surrounding some of the more outlandish ideas contained here are likely to be short.

Neil Copeland

Will the recent European Court of Justice (ECJ) ruling over gender-based pricing of insurance products result in a rebirth of Haruspicy?

Pretty much since the Enlightenment we have got used to approaching the world in a logical fashion. The Oxford English Dictionary says that scientific method is: “a method of procedure that has characterised ….. science since the 17th century, consisting in systematic observation, measurement, and experiment, and the formulation, testing, and modification of hypotheses.”

Over time observations and measurements of life expectancy have been made, formulated  and tested and a hypothesis developed which says that women live longer than men.

Hypotheses tend to represent the generally accepted position. Hypotheses are subject to periodic retesting and where, after rigourous testing, a hypothesis appears to no longer adequately explain an observed phenomenon then it can be replaced by a new hypothesis which offers a better or more complete explanation. Whilst no hypothesis would ever be held to be an eternal truth, neither would it be discarded or ignored without a compelling rationale to do so.

The learned members of the ECJ, however,  appear to have overturned the current hypothesis on life expectancy, not because compelling statistical evidence has emerged which suggests the hypothesis is not valid, but on a whim because it is not “fair”, whatever that means, and objective justification no longer seems to be a defence.

So it looks like we will be faced with the outlawing of gender based pricing by the end of 2012, and I’ve been trying to think of alternative approaches which insurance companies could use to help them price their products, and I’ve come up with Haruspicy. Read more »

Alan Collins

If life expectancy was measured on the mars bar scale, Kensington and Chelsea would be “fun size” and certain areas of Scotland would be “deep fried”.

I assume pension buyout specialists Pension Corporation use a more sophisticated method of measurement. I read with interest their press release yesterday which stated that pension schemes with Scottish members may be over-estimating life expectancy and therefore actual pension liabilities may be lower than currently estimated. Read more »

Valerie Hartley

I recently came across some bizarre yet interesting reading from a study carried out at end of last year which looked at geographical differences in mortality. The study looked at how mortality varied by postcode.

The study highlights the worst, or “shortest lived”, towns, and the best or “longest lived” towns. The differences are such that some of the shortest lived towns should probably carry a Government health warning!

The study, carried out by Towers Watson ranked localities across the UK. A score of ten, the UK average, means that actuaries expect ten in every thousand males aged 65 to die in the next 12 months. The higher the score, the more deaths expected. The study showed that the ten ‘shortest-lived’ towns are as follows:-

Town Mortality Rating
Kilbirnie, Ayrshire 15.4
Bootle, Merseyside 15.3
Lochgelly, Fife 15.3
Kyle, Ross-shire 15.1
Queenborough, Kent 15.1
Arisaig, Inverness-shire 14.8
Castlederg, Co Tyrone 14.8
Cumnock, Ayrshire 14.8
Mayport, Cumbria 14.8
Sanquar, Dumfriesshire 14.8

Kilbirnie, the least healthy place in the UK to live, has a mortality rating of 15.4%. Its population of approximately 8,000 people are served by no fewer than 3 firms of Funeral Directors!! This means that there are more firms of Funeral Directors than Banks or Grocery Stores in the town. Sorry to break this news to you, Kilbirnie residents!

What this means is that a 65 year old Kilbirnie male will live on average a further 17 years – 3 years fewer than the national average and 8 years fewer than people in postcode areas identified as the longest-lived postcodes; or to put it another way a male aged 65 living in Kilbirnie is more than twice as likely to die within the next 12 months than a person living in one of the healthier towns. Grim?

At the other end of the spectrum, the ten ‘longest-lived’ towns are as follows:-

Town Mortality Rating
Montacute, Somerset 6.4
Brockenhurst, Hampshire 6.7
Aldeburgh, Suffolk 6.8
Church Stretton, Shropshire 6.8
Colyton, Devon 6.9
Lyme Regis, Dorset 6.9
Lymington, Hampshire 6.9
Budleigh Salterton, Devon 7
Hinton St George, Somerset 7
Verwood, Dorset 7

If you take Montactute as an example, a male aged 65 can expect to live 25 more years! As unbelievable as it may seem, residents have been known to live in the town to a grand old age of 106! Whether this is a good thing or not, is a question for the residents of Montacute.

Obviously Kilbirnie, the place itself, is not the cause of these excess deaths. It’s clear that there are other factors which such as the populations general health & wellbeing, lifestyle, diet, perhaps education, occupation (stress) and wealth/poverty but to name a few.

Equally, there is nothing magical about a certain postcode that ensures longer life. However, the Mortality Map, does show a clear North-South split with people in Scotland and the industrial North East and North West of England tending to be shorter-lived, whereas people in East Anglia, the South East and South West, with exception of Cornwall, generally living longer.

Research suggests that mortality is linked to socio-economic factors rather than geography – the old industrial heartlands having a higher proportion of the population in “lower” socio-economic groups.

However the significance to individuals is that many pension providers, notably L&G, Aviva and Prudential, take into account postcode location when pricing annuities.

Therefore if you are a resident of Montacute looking to purchase an annuity you are going to get a much poorer deal than the average because of your postcode. Perhaps it’s time to check out a move to Kilbirnie in search of a better annuity rate!

Neil Copeland

Thomas Aquinas apparently spent a large part of his life pondering the number of angels that could dance on the point of a needle. He also , apparently, could gravely debate whether Christ was or was not a hermaphrodite and, most crucially of all, whether or not there are excrements in Paradise.

Speaking of interesting digressions, this brings me to actuarial mortality assumptions and, in particular, the question of the most appropriate mortality assumptions to use for a particular valuation for a particular scheme.

I always think the key thing to bear in mind is that whatever assumption is chosen it will be wrong.

For example, I suspect any of the tables currently in use ignore the impact on mortality of future trends of Global Warming (or more likely Global Cooling, at least in the short term, as we appear to be 10 years into a cooling trend, although as with all statistics it depends on your starting point). Actually, Global Cooling is potentially a greater risk to humanity than Global Warming as a few degrees of Global Warming are projected to result in a net increase in food production (statistically at least, which I find tends to be shorthand for “not much better than guessing wildly”), whereas Global Cooling much more quickly results in a net reduction in food productivity, with dire consequences for the teeming millions.

But hey, the polar bears will be all right, which is the main thing, I guess.

Obviously if warming were to continue beyond a few degrees this would start to have a negative impact on food production also. And result in malaria in Notting Hill – such a development would be of great help to many final salary pension schemes. However, given the recent lessons of SARS, Avian Flu and Swine Flu, such schemes probably can’t rely on a Global pandemic to solve their mortality problems.

The good news is that,  in the long run, Malthus may eventually be proved correct. Studies of animal populations that grow at a rate greater than the potential food supply generally see catastrophic reductions over a very short period. Eventually.

And have the actuaries considered the risk of a meteorite strike? A direct hit in the greater London area would do wonders for the BT Scheme’s deficit. Just in case you think I’m being facetious, which of course I am, below is a summary of a news story that reports that such a strike is probable, statistically speaking. Eventually.

The story reported that a 13 year old whizkid from Germany corrected NASA scientists on the probability of a asteroid called Apophis striking earth. While NASA scientists took the probability calculations (which are far from easy) and estimated that there was a 1 in 45,000 chance of strike; the boy’s findings showed the chances to be 1 in 450. NASA scientists concluded that he was actually right since they had not considered the possibility of the asteroid striking with satellites , something that the 13 year old did.

Slightly disappointingly, NASA subsequently refuted this element of the story and claimed it had faith in its original calculations.

However, both NASA and the 13 year old agree that if the asteroid does collide with Earth, the resultant shockwaves would create huge tsunami waves, destroying both coastlines and inland areas, while creating a thick cloud of dust that would darken the skies indefinitely.

So what have we learned from our digressions  into climatology, demography and astronomy?

Well firstly, even 1 in 45,000 isn’t  a particularly comforting probability when it comes to possible armageddon and the extinction of human life. By some estimates the mass of the earth increases by about 40,000 tonnes a year due to extraterrestrial bits and pieces striking it. These are obviously pretty small meteorites, but conversely that’s an awful lot of actual collisions. It only needs one big one, and if it comes, Bruce Willis and Billy Bob Thornton probably aren’t going to be able to help.

Secondly, sometimes it’s worth getting an alternative view, but not necessarily from a 13 year old. Notwithstanding the uncertainty attaching to climate change and meteors, it’s important for trustees and employers to understand, as far as is possible, the latest thinking on mortality and how it is likely to develop in future.

Thirdly, it should be apparent from the above that the uncertainty inherent in final salary schemes poses real risks for many businesses. Also whilst attention to detail is important you shouldn’t lose sight of the big picture. The good news is that you can be pro-active in taking steps to manage and reduce the risks.

And finally, whilst I haven’t specifically quantified the direct effect of such a meteor impact on rates of mortality, I presume you can draw your own conclusions.

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