Emma McWilliam and Richard Purcell urge individuals to look on the bright side of death to overcome hurdles and personalise their life expectancies
When five comedians in their 70s can fill the O2, a clear but subtle message is given amidst the comedy - it's positive to be old and even though they are "one down, five to go", the remaining group is still living life to the full. And perhaps the longevity of Monty Python and their unique style of comedy can provide some inspiration when it comes to the topic of life expectancy.
Communicating longevity can be as complex or simple as you make it. Certainly Monty Python's line "I'm not dead yet" is an effective way. But no one wants to think about his or her own death and this makes engaging on life expectancies a challenge.
With financial responsibility gradually shifting to individuals, against a backdrop of fewer financial advisers, life expectancy is something we all need to get to grips with - whether for financially protecting family or planning for retirement. Actuaries have a key role to play in working out how to communicate life expectancy to the wider population. So we should try to bring longevity to the fore.
Flaw of averages
It won't be a surprise that very few individuals die exactly in line with their own expected lifespan. And life expectancy cannot be viewed as static as it creeps up the longer one lives.
Not only should individuals understand the full range of possibilities, but also reassess their projected life expectancies at regular intervals. It helps to visualise the possibilities for long life, as illustrated for healthy, wealthy males and females in Figure 1 (below).
Perception versus reality
Perception is another hurdle to overcome.
A recent 'Reality Cheque' survey conducted by Hymans Robertson showed that individuals underestimate life expectancy at retirement by some five to eight years on average (Figure 2, below). This is possibly a function of personal anchor points, the inability to conceptualise living in old age, and the media reporting 'period' rather than 'cohort' life expectancies (the former not allowing for future mortality improvements).
As expected, the perception gap has been shown to close as individuals consider life expectancy at older ages. This requires us to take different approaches for different age groups.
Anchoring and framing
Personal anchor points may play a useful role when it comes to thinking about and shifting the boundaries of an individual's perception.
For example, 'What is the oldest age you have known someone to live to?' may prove more insightful than 'What age did your grandparents live to?'.
Framing questions in terms of when people will 'live to' rather than 'die by' can also give a nudge towards a more realistic estimate. Indeed, Columbia Business School research has shown that people predicted life expectancies around seven to nine years higher when questioned in the 'live-to' category. Also, positively envisaging living in retirement seems to open up thinking to outcomes around living longer.
Yet, while such questions help the shift towards a more realistic range of outcomes, longevity is still potentially underestimated, as lifespan increases over time.
'Nudge nudge'
Could taking a different approach to presenting lifespan help encourage better decisions?
We could present an individual's 'implied age' based on their own lifestyle factors. This approach is used by a number of insurers around the world that use the Vitality programme to promote and reward healthier living. So, an individual who does not undertake enough exercise may have an implied age of 33 when they are actually only 30 years of age. This shows the impact of lifestyle on longevity at an individual level. In a similar way to the TV programme 10 Years Younger, this approach gives people the impetus to change their lifestyle for the better.
Similarly, we could encourage people to adapt their plans for retirement by showing them the potential risks that exist. If someone can see that their funds will run out by the time they are 78, but their life expectancy is 85, they may be positively encouraged to save more, work longer or plan for a more austere retirement.
Ranges and risk appetite
We should help people understand the full range of likely outcomes. For example, a '90% probability you will live to be between age 70 and 90' or '10% chance you will outlive your savings', may help the individual to conceptualise possible retirement outcomes.
Understanding an individual's or a couple's appetite for risk is then the next step to deciding how much they need to save and which retirement products to choose. For example, to be 100% certain not to outlive wealth, a form of annuity may be appropriate, whereas a higher-risk appetite may indicate income drawdown.
The 'meaning of life'
The common 'currency' for discussing life expectancy and potential ranges should be one that is well understood by the audience.
Communicating to boards and investors on longevity can come to life when presented in terms of, say, the financial impact on capital and embedded value. However, just as boards do not plan in terms of becoming insolvent, neither do individuals want to think in terms of their own death. So, try another entry point in terms of 'the meaning of life'.
Surveys of the most important things in life invariably rank family, health, career, where you live and money among the top five. Engagement is likely to be higher if the life currency is in terms of say:
? Family: showing life expectancies in terms of the expected number of birthdays, or other important family events such as future holidays.
? Health and lifestyle: showing how life expectancy is affected by lifestyle factors such as exercise, alcohol intake and smoking.
? Career: showing life expectancy relative to retirement age and state retirement age.
? Where you live: showing regional or postcode-based life expectancies to give a more meaningful benchmark than national averages.
In personalising life expectancies and making them relevant in the context of financial planning, you have to make sure it does not turn into 'the Spanish inquisition' sketch. A simple and rewarding process of engagement that entices individuals to disclose further information to better refine life expectancy estimations is the best outcome for all.
Indeed, the risks are minimised and rewards are highest for individuals who can grasp longevity in terms of everyday activities, such as buying a lottery ticket. For example, the odds of an average 65 year old living to 100 are higher than the odds of getting three numbers on a single UK lottery ticket! It is only at this stage that individuals are able to envisage their life in retirement and push the limits of planning to think positively about future life milestones.
And now for something completely different...
In the world of Monty Python, they looked at "how to build certain interesting things". In the world of pensions, Steve Webb, the minister of state for pensions, has committed to delivering a guarantee of guidance to fulfil our retirement needs, with longevity considerations being a core element.
The challenge will be building interesting and engaging ways to communicate longevity to the masses in a personalised way. Infographic dashboards - picture-based communications - on life expectancy are some of the most fun ways to receive this information. Such methods are emerging in the UK but are common practice for some providers in other parts of the world, such as in the US and Australia.
In our view, the most successful communications are likely to be those that are tangible and relevant, encourage conceptualisation of the range of possible outcomes and look on the more positive side of life. These three ingredients will enable and actively encourage individuals to make informed decisions and take ownership around planning for protection and retirement needs.
So, for the benefit of all generations, we call upon actuaries to play their role centre stage to help communicate life expectancies. And just like "five to go", the motto "always look on the bright side of life" will benefit everyone.