Savers may “take their foot off the gas” with retirement saving following the UCL’s findings that the rises in English life expectancy have almost levelled off, the industry has warned.

Office for National Statistics data analysis by University College London Institute of Health Equity director Sir Michael Marmot showed that life expectancy at birth has slowed to a one-year increase every 10 years for women and one for every six for men post-2010.

Commenting on the findings, Aegon director Steven Cameron warned: “There’s always a risk when people see figures like this that they take their foot of the gas when it comes to long-term savings, but this needs to be balanced against the fact most of us have a long retirement ahead.”

Even if improvements in life expectancy continue at a slower pace, “the reality is that those people approaching retirement age should be expecting to spend 20 or even 30 years in retirement, which requires serious financial planning, particularly for those people who won’t have a generous defined benefit pension to fall back on”, he added.

State Street Global Advisors senior DC investment strategist Maiyuresh Rajah agreed, stating: “Whether there has been a slowdown in the rising rates of life expectancy or not, it does not change the fact that retirement looks very different for the retirees of today and the future compared to the retirees of the past. People are already living longer than previous generations and the three stage life model of the past, where people move from education to employment to retirement is already outdated.”

According to PTL managing director and PLSA chair Richard Butcher, rising longevity has long been a double-edged sword and therefore its slowdown “isn’t bad news for pension saving”.

“For a DB scheme, increased life expectancy has meant more expensive schemes – with the employer picking up the tab. This has contributed to their demise. Flattening or slowing increases in life expectancy will ease the financial pressure on those employers. For a DC scheme member, increased life expectancy has meant having to make their savings last longer. Flattening or slowing life expectancy will ease that pressure.

“In other words, this isn’t bad news for pension saving. Reducing life expectancy may mean shorter lives, but it also means more affordable pensions,” he explained.

Quantum Advisory senior consultant and actuary Simon Hubbard agreed, stating that the slowing of life expectancy improvements since 2013 has knocked approximately 5 per cent off the liabilities of a typical DB pension scheme, equivalent to £75 billion across all UK schemes.

“This offers welcome relief for schemes facing liability increases of around 30 per cent as a result of falling gilt yields. Not all pension scheme trustees will have incorporated the latest evidence on life expectancy in their scheme valuations yet, perhaps taking a cautious approach to see if the trend continues or is just a blip,” he said.

If future life expectancy improvements continue at a much lower rate than previously expected, this could knock another 2-4 per cent off DB pension scheme liabilities, Hubbard added.

For DC, Hubbard stated the cost of buying an annuity will have come down by about 3-4 per cent since 2013 as a result of life expectancy changes (albeit only offsetting an increase of around 20 per cent from falling gilt yields).

If the longevity slowdown trend continues it could knock another 2-3 per cent off the cost of buying an annuity, he added.

However, Hubbard noted that both trustees and insurers will be cautious about reducing their assumptions for future life expectancy and will wait to see if the trend continues or is “just a blip”.

AMNT co-chair David Weeks echoed this, noting that the UCLs’ findings confirm projections that have been under discussion for some weeks, with opinions varying as to the causes of the slowdown.

“Trustees do not, of course, have any policy remit for taking remedial action. We will need to take into account latest data when we come to update our valuations of liabilities and assets. Other factors will apply here, too, of course. There is, for example, a change in the latest headline inflation figure. I suspect that most trustee boards will wish to take a measured approach to changes in valuation assumptions,” he said.

Standard Life Investments investment director George Emmerson warned that mortality tables “can be affected by a specific event, bad weather, widespread illness etc so it’s always worth treating them with a slight pinch of salt and looking at long-terms trends to see if there are any tail event numbers that have distorted the trend”.

Therefore, PLSA head of governance and investment Joe Dabrowski suggested DB trustees look carefully at the proportion of more affluent members in their scheme to ensure they have the right funding plans in place, due to the longevity disparity between different socio-economic groups.

Share Story: