Pension Wise, the government’s new guidance guarantee service, must discuss life expectancy as part of people’s retirement planning, Aviva has said.
A new report from the provider has argued the lack of clarity around the interplay of factors affecting life expectancy could mean than many people default to average longevity figures that do not reflect their personal situation.
This could either be because they do not understand that as they get older their life expectancy increases or that, as a healthy saver, they need to add years on to their life expectancy.
The survey conducted by ICM Unlimited for Aviva, with a sample of 1,100 people aged 50 to 65-years-old, found women in that range expected to live on average to 84 years, while men said 80 years is the average age.
Office for National Statistics data showed that at age 65 years, the average life expectancy is 86 years for women and 83 years for men.
However, Aviva’s analysis found that people who are savers and healthy are likely to live even longer, to 89 years for women and 88 years for men, meaning those aged 50 to 65 in the UK routinely underestimate their life expectancy by up to eight years.
Those retirees estimating they will need £100,000 of private pension savings to top up their other income, such as state pension, could actually need about £150,000.
Asked about how long they personally expect to live - a significant number of people say they will die before they reach their average life expectancy - 29 per cent for men and 23 per cent for women.
More than half (55 per cent) of 50 to 65-year-olds think they will have what they consider an average life expectancy, and 19 per cent say they will live a longer life.
John Lawson, Aviva’s head of policy, said it is impossible to say with any certainty what an individual’s life expectancy will be, but that enough is known about the factors affecting it to be able to arrive at informed conclusions.
He said: “For a retiree sitting down for the first time and working through their finances and retirement plans it is absolutely essential that they have the most accurate view of their life expectancy.
“We think Pension Wise is the best place to start this conversation.”
In November, the Financial Conduct Authority published its consultation on the ‘guidance guarantee’. While it agreed that further clarity was needed, it said the guidance guarantee session must:
• inform consumers of the scope, purpose and limitations of the session;
• inform consumers about the pension entitlement and other personal and financial information that the designated guidance provider may request from them during the session;
• request information from the consumer about their accumulated pension pots;
• request information about the consumer’s financial and personal circumstances that is relevant to their retirement options; and
• alert the consumer to other sources of information and advice as appropriate and at relevant points during the session.
Mr Lawson said that the forthcoming at-retirement reforms make longevity an even more crucial issue to consider.
He said: “Our research suggests that people need to rethink how much money they will need for their retirement, or the age at which they retire, as it is likely they are underestimating the number of years they will need to live off their savings.
“A good understanding of longevity is a vital part of retirement planning, particularly as consumers will have far more freedom in how they use their pension savings.”
peter.walker@ft.com
