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The Actuary The magazine of the Institute & Faculty of Actuaries

Longevity stats highlight pressures on national finances

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The longevity statistics highlight the mounting pressure on the country's finances. But Britain isn't the only country facing this problem; America is also experiencing a rapid rise in life expectancy along with the implications for the cost of providing pensions, healthcare and long-term care. For example, it is estimated that pension liabilities increase by 3% or more for every added year of life expectancy.

Dr Bob Swarup, Pension Corporation, explains: "As the baby boomers come up for retirement, both here and in the US, it will put enormous pressures on an already strained public balance sheet. In the US it means pressure on areas such as social security, Medicare and long-term care."

He continued: "We've got all these ‘reassuring' figures about the debt-to GDP ration of each country that tell us many are still well below 100% and not past the point of no return. But the official ratio only takes into account the on balance-sheet debt. When you start taking into account public sector liabilities, pension obligations, and so forth, the actual ratios no longer look reassuring. In the US, for example, total net liabilities are north of 500% of GDP. The UK is marginally better off at c. 400%. That's scary and implies that we are facing a real solvency crisis in the developed world.

"Ironically, the US has lessons in the past to learn from. Payments for the American Civil War Veterans pension scheme grew so large that at one point in the 1890s, it made up over 40% of the US budget. As they grew older and died, the payments shrank, but due to a surge in marriages between elderly veterans and poverty-ridden young ladies in the Great Depression, payments were still being made into the 21st century.

"Today, neither the US nor the rest of the developed world has that luxury. If nothing changes, the US can expect to pay an additional 8% of GDP to age related expenditure by 2050. The last time I checked, that was another $1.1trillion a year in additional costs for the US. Where will that money come from?"