UK Loses Decade of Improving Life Expectancies

The trend of falling life expectancies seen over the past few years in the UK has continued into this year, according to KPMG, which has declared a “lost decade” of life expectancy improvements as the mortality rate in 2019 is expected to fall back to levels not seen in 10 years.

According to KPMG’s 2019 Pensions Accounting Survey, the median life expectancies for retirees aged 65 declined by 0.2 years to 86.9, while life expectancies for 45-year-olds fell 0.1 years to 88.4. That means that a current retiree aged 65 is expected to survive another 21.9 years on average, while future retirees currently aged 45 are expected to live another 23.4 years from the age of 65. The median gap between current retiree and future retiree life expectancies has remained at 1.4 years for a 20-year projection, according to the report.

The research is based on trends in best-estimate assumptions from 212 clients with defined benefit pension plans reporting under IFRS, UK GAAP, or US GAAP at the end of last year.

“By the end of 2019, assumed life expectancies will be back to levels last seen in 2009,” Naz Peralta, KPMG’s pensions director, said in a release. “This ‘lost decade of life expectancy’ is largely due to the slowing rate of future mortality improvements as projected by the Continuous Mortality Investigation Bureau (CMIB) over the past four years.”

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The CMIB, which is supported by the Institute and Faculty of Actuaries, continually updates its research and produces annual updates of the CMI projection model. During the past few years, these updates have projected a slowing rate of future mortality improvements.

KPMG attributed this trend to the fact that 76% of companies adopted the latest CMI projections, which reflected a decrease in the expected rates of future improvements in mortality. There was a new parameter added to the CMI 2018 model, called the initial addition parameter. The parameter is intended to allow users of the model to make adjustments to reflect differences in improvements in a particular sub-population relative to the general population data on which the model is calibrated.

“The initial addition parameter is the second new parameter added in recent years,” said Peralta. “Although these in theory allow companies to tailor their assumptions better, in practice it is likely to cause some confusion due to the complexity and subjectivity involved. We expect many companies will use the default assumptions for these new parameters until they are understood better.”

Global Life Expectancy Improvements Slow Down

Tags: KPMG, life expectancies, Pension, UK

Bipartisan US senators are proposing legislation in an effort to secure workers’ retirement benefits in the long run, through the formation of a new retirement commission that would guide private retirement plans to a more sustainable future.

Coined the Federal Retirement Commission Act, Sens. Todd Young, an Indiana Republican, and Cory Booker, a New Jersey Democrat, would create a group responsible for reviewing private benefit programs and submitting to Congress recommendations on how to improve or replace the programs. Their judgements would be mandated to consider societal trends such as wage growth, health care costs, life expectancy, serial employment, and shrinking household size, with a focus on moving from defined benefit to defined contribution models.

“With many individuals reaching retirement with little to no savings of their own, we must take a serious look at our current retirement programs and make the changes necessary to help secure the futures of so many hardworking Americans,” Young said in a statement.

The bill would essentially restructure these private pension plans to run more efficiently and effectively. The Senate Finance Committee held a hearing on the issue after its introduction, where it was widely regarded as a top priority for Congress given the troublesome financial situations many retirees face.

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The bill comes on the heels of the 2017 Government Accountability Office Report, which concluded an independent panel of experts would be valuable to address the needs of the current environment and improve the nation’s collective retirement security.

It’s been over 40 years since a federal commission completed an investigation of the retirement system at the magnitude the two senators are proposing. The last time was Jimmy Carter’s 1979 executive order to complete a two-year study of the pension system and the future of the nation’s retirement income policies.

“Private retirement systems have undergone significant changes over the past 40 years as traditional pensions have become less common,” Young said in a prepared statement. “Individuals must now prudently plan for their own retirement security through retirement savings accounts like 401(k) plans.”

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Tags: Cory Booker, Government Accountability Office Report, Pension, Todd Young

UK Loses Decade of Improving Life Expectancies

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