Despite significant improvements between 2000 and 2011—more than three months per year on average—in the four years afterwards, there was just a four months improvement in total.
“It will reduce the deficit in a scheme that is 90% funded by 10% of that deficit.”—Hugh Nolan, JLT Employee BenefitsLife expectancy at 75 years was expected to have increased by more than seven months in that time, but in fact did not move at all.
“Insurers and pension funds will need to consider whether this recent experience indicates a fundamental change in mortality improvement trends, or whether it is a short term variation due to influences such as influenza and cold—financial implications are material,” said Tim Gordon, chairman of the the institute’s Continuous Mortality Investigation (CMI).
Hugh Nolan, chief actuary at JLT Employee Benefits, said the figures predicted a male aged 65 would be likely to live four months less than was estimated in a similar study last year.
“This reduces the liabilities of UK private sector pension schemes by some £15 billion,” said Nolan. “While this is only 1% of the total liabilities held, it will reduce the deficit in a scheme that is 90% funded by 10% of that deficit, which can be extremely helpful for individual schemes struggling to reach full funding.”
The CMI data fly in the face of recent surges in longevity improvements—and efforts to contain its effects.
In December, the Organisation for Economic Co-operation and Development (OECD) called for policymakers to strengthen their regulations to assist pension funds and annuity providers in dealing with longevity risk. The organisation said it was a major financial issue that was not being properly confronted.
However, in 2009, a study by David Dorr, former-CEO of life settlements trading platform Life-Exchange Inc., claimed: “We are at the apex of the longevity growth curve.” Dorr set out evidence for how and why longevity increases would slow and eventually stop.
“The new tables serve as a timely reminder to trustees and employers of defined benefit pension schemes that any mortality tables are simply a guide to the future,” said Francis Fernandes, actuary and senior adviser at Lincoln Pensions. “It’s probably better to be pragmatic and reflect any step changes in the tables—good or bad depending on one’s perspective—over a period of years. This will give sufficient time to see if the revised tables are borne out in practice, noting the sponsor covenant will be there to support the impact of adverse experience.”
Related: Time Running Out on Longevity Risk, Warns OECD; The Apprentice: The Longevity Pitch; Is Longevity Risk Dying?