The largest rise in life expectancy is for women in Estonia which has improved by 2.9 years. The smallest rise is 0.7 year improvement in life expectancy for women in Iceland and also the former Yugoslav Republic of Macedonia. Interestingly, in the UK, it is men aged 65 who have seen an increase in average life expectancy, of 2.3 years, whereas UK women aged 65 have seen an increase of only 1.8 years over the same period. The chart below compares the increases in life expectancy for men and women across the EU.
Much of this increase is explained by the improvements being made in healthcare provision and the fact that people now have relatively healthier lifestyles and better living conditions. However, to understand the consequences of this rising life-expectancy trend we need to better understand the process of ageing.
The Longevity Science Panel recently published a paper which included interviews with eight of the most eminent authorities on the biology of ageing, to try to better understand the process of ageing and potential ways to delay it.
The paper, entitled: “What is ageing? Can we delay it?”, confirmed that the process of ageing is very complex, involving many interacting chains of biochemical events in the body. The scientists also agreed that we are still far away from a single ‘magic’ pill that could help to delay ageing substantially.
Instead, what has emerged is that increasing the time a person spends in relative good health, called healthspan, actually helps to extend people’s lifespan. So minimising the number of years people are in misery in their later years because of ill health or disability by channelling resources and effort into making people healthier, would enable us to live longer, as a secondary benefit.
The Longevity Science Panel concluded that exercise and a healthy diet are the most practical ways to delay ageing. A nutritious and well-balanced diet that prevents obesity and promotes health would help a population to live longer. All this sounds simple, but adherence to a healthy lifestyle is a huge challenge.
For example in 1979, 2,500 men were asked to follow five simple rules – eat well, work out, drink less, keep their weight down and never smoke. Nearly four decades later, just 25 now-pensioners, representing a mere 1 per cent of the original group, managed to stick to the plan.
The outlook by the panel is that UK life expectancy will continue to rise in the next decade, but not as fast as in previous decades. However, the continued rise in life expectancy will result in a greater number of older people in the UK population. According to the Office for National Statistics Principal Projection, between 2015 and 2035 the number of people aged 60 or above will increase from 15.1 to 21.4 million – an increase of 6.3m. This will be an overall 42 per cent increase in people aged 60 or over and a 480 per cent increase in those aged over 100.
So with such a greater number of people living longer, the emerging issues as a result of improvements in life expectancy could include, for example:
An increased economic contribution by the older population. After deduction of the costs of pensions, welfare and healthcare, it was estimated in 2010 that the over-65s make a net contribution to the UK economy of £40bn through tax payments, spending power, donations to charities and volunteering. This net contribution is expected to grow to £77bn by 2030 with the rise in the number of people over age 65.
This presents an opportunity for the financial sector to design savings and insurance products and services that aim to help the lifestyle and circumstances of the increasing number of older and longer-living customers.
Rising need for investment in UK infrastructure. With growing demand from an older population for potentially smaller properties as they downsize and need assistance in their homes, the current housing shortage for this demographic is likely to worsen.
Infrastructure investment should be encouraged. For example, one provider has already announced its support with plans to invest up to £15bn in UK infrastructure over the next few years – part of this funding would benefit the ageing population such as investment in new care homes.
Healthcare needs will increase. This is particularly the case with potentially more complex chronic health problems being presented by the ageing population. But funding for the NHS has been frozen since 2011 and the funding gap is projected to be £30bn by 2020. More efficient and effective approaches are required to support the ageing population and help reduce the gap in funding.
Social care needs would increase. The elderly are entitled to social care including care homes, special-needs equipment and help at home, such as cleaning, from the state. However, Age UK has reported that England’s provision of social care is in crisis, with more than 800,000 people with care needs that are not being met due to underfunding. There is an opportunity for public and private sectors to work together to encourage savings and pooling of risks, ensuring the population’s needs are improved and therefore sufficient.
State benefits adjustment. The cost to cover just the state pension for the growing number of people in the UK population who will then be eligible will need to increase substantially. This is likely to lead to reduced generosity of the state pension.
Longevity risk management by institutions. Pension funds and annuity providers hold funds to meet their liability to make life-long payments to their pension customers. They have allowed for substantial improvements in longevity in their forecasts for the purposes of reserving and capital requirement.
However, there is a risk that with pensioners living longer than expected, the payments that will need to be made will be for a longer period than planned – a risk commonly called longevity risk. The longevity risk management community will need to strive to develop sophisticated approaches to forecasting future longevity trends that allow for health and medical advancements.
Longevity risk management by individuals. The introduction of the greater flexibility from April next year and the removal of compulsory annuitisation following the Budget announcement, means that people will need to consider and assess their own potential longevity when making their plans for the future. The continuing development of tools that help to explain and educate people on how long they may live will be required, particularly where people are making their own choices on their future income needs in retirement.
In the developed world, we have been living longer and we can live even longer through regular exercise, healthy eating and good use of current medicines. Other factors such as improving health preferences, living conditions and medical technology will help too. However, living longer will also contribute to an ageing population with larger numbers of the elderly population potentially living with frailty.
We all need to understand the implications of these changing life-expectancy trends to ensure that sufficient funds are secured to achieve an adequate level of retirement income throughout our potentially extended lifetimes. This challenge is of particular concern because before the Budget announcement it was normal for the majority of people to rely on the guaranteed income products from insurers with the expertise to factor in the appropriate level of longevity risk.
Understanding our potential life expectancy and longevity risk is vital when making those important choices on how to secure our future retirement income to ensure it does not run out.
Joseph Lu is director, longevity risk of Legal & General Retirement
Key Points
We are still continuing to see an increase in life expectancy across Europe.
The outlook is that UK life expectancy will continue to rise in the next decade, but not as fast as in previous decades,
The introduction of the greater flexibility from April next year means that people will need to assess their own potential longevity when making their plans for the future.
