Pensions  

Financial impact of longevity dip

Financial impact of longevity dip

The first quarter of 2018 was a remarkable period for mortality in the UK. According to data from the Office for National Statistics, only one day in the quarter failed to trump the five-year average for the number of registered deaths in England – 25 March 2018.

In total, there were 10,000 more deaths registered than would be expected had the rate of mortality been similar to the five-year average. While the second quarter of 2018 was less remarkable, cumulative deaths for the year are still running well ahead of expectations. 

It is likely that we will see another year in which life expectancy has only improved marginally. While this is clearly bad for all of us from a human perspective, the recent stall in longevity improvements has spelled good news from a financial perspective, for insurers, pension schemes and the average person retiring in the UK. Let’s understand why and explore the implications.

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Slowdown in longevity

We are all familiar with the idea that we are living longer than ever before. What many may not realise is that 2018 looks to be the seventh consecutive year that life expectancy in UK has failed to improve by anything more than a whisker. 

 

Since 2011, life expectancy at birth in the UK has improved by close to two weeks a year. When you compare this with the average rate of improvement over the previous few decades, with well over 10 weeks of additional life expectancy a year, it is clear there has been a change in pace.

The cause of the recent stall is not fully understood, although there are some clues in the data. First, this is something mainly affecting the oldest members of the population, particularly those aged over 85. Second, deaths from dementia and Alzheimer’s-related complications are on the rise, having roughly doubled and trebled, respectively, since 2000 (albeit partly through better identification), offsetting some of the gains from the other major killers (cancer, heart, stroke and respiratory diseases). 

Some blame austerity as a major factor, although it is hard to prove. 

Key points

  • Life expectancy is decreasing
  • Reasons for mortality are changing, with increasing emphasis on diabetes and dementia
  • Longevity is likely to have an impact on financial products, reducing the cost of paying pensions

What is certainly a factor is that we are moving beyond the generation which, from the 1980s onwards, stopped smoking and enjoyed the benefits of a revolution in cardiovascular care, among other health improvements. These gains are hard to repeat.

This is not just a UK issue either. Many other countries – including the US, Spain, Germany, Portugal, Sweden and Canada – have also seen a slowdown in the past six years, following a period of strong improvement in life expectancy. 

In North America, health spending has continued to grow. It would be remiss not to mention that a notable number of countries have enjoyed continued longevity improvements over the period, including Japan, France and Italy.

Where next?

We have entered a period of slow and steady longevity improvements, but how long it will last and what comes next? 

The answer is in the balance of many factors, both positive and negative. For example, there are real concerns regarding diabetes and antibiotic resistance.