UK - Providers must urgently update their projection models before pensions' deficits reach catastrophic proportions, a leading academic has claimed.
Professor David Blake, director of the Pensions Institute at Cass Business School, along with academics Professor Andrew Cairns and Professor Kevin Dowd, created a new model which found increased mortality among males could cost pension funds and the government an additional £160,368 per person.
The Blake-Cairns-Dowd model is based on analysis of mortality data for 65-year old males and indicates longevity is increasing far more rapidly than previously predicted.
It found males reaching 65 in 2050 would on average live for another 26 years, six years more than currently predicted on the basis of Office for National Statistics data.
Blake said: “We know people are living for longer but this model demonstrates that longevity is accelerating far beyond what is currently predicted and there is considerable uncertainty surrounding future life expectancy.
“This intensifies the problems faced by both the government and the UK pensions industry.”
David Cule, principal at Punter Southall, said one or two years per decade was a rough estimate of the longevity improvements which could be expected. He said: “Clearly it is going in that direction but the quantum is quite difficult to predict.”
But he said by 2050 it was likely most private sector pension schemes would no longer exist. He added: “The private sector liabilities will be minimal by 2050, however, the public sector pension liabilities potentially could be huge unless something is done to change the benefits. Over that 40 year period, politicians will change things.”
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