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The Actuary The magazine of the Institute & Faculty of Actuaries

Updated longevity figures could add 5% to scheme liabilities

Scheme liabilities could soar after the Office for National Statistics published updated longevity figures showing increases in life expectancy.

Life expectancy for both sexes at 65 rose by more than three months in the last year and now stands at 18 years for men and 20.6 years for women.

Club Vita longevity consultant Andrew Gaches (pictured) said schemes that had assumed the rate of improvement had slowed would need to update their assumptions - at a cost of a 3% - 5% increase in liabilities.

He said: "There's no evidence that these rapid rates of increase are slowing down and that's another warning for schemes - most of which assume the trend is slowing down."

But the longevity improvements are affecting different parts of the country in different ways, with more rapid increases in areas that already had the highest life expectancy.

The five local authorities with the highest life expectancy last year experienced an average increase of 0.34 years, while the five at the bottom of the list saw increase of 0.18 years - just over half the rate of improvement.

Gaches said this was relevant to schemes as they rarely represented a full cross section of society and often had significant liabilities relating to a narrow tranche of members.

"The sooner schemes are able to make use of information about the trends for their members, the better," he said.

He said schemes could look at trends in pension schemes of their type, and look at the likely drivers for future trends - which would vary for different socio-economic groups.

This means that rapid increases in life expectancy in the future from factors such as a fall in smoking rates were still possible in areas which had seen the slowest increases so far - presenting a significant risk for some schemes.

Gaches said some schemes had factored in current rates of increase but many still had not done so.

"There are schemes that have not yet taken on board this evidence that has been building up for the last two or thee years and continues to come through strongly in this latest data," he said.

Source: Professional Pensions