UK - Increased life expectancy poses as great a threat to the solvency of pension schemes as falling stock markets, the Faculty of Actuaries warns.
In a new report – carried out for the faculty by a group of leading actuaries – experts claim increased longevity will lead to a rise of up to 60% on the cost of purchasing an annuity.
It found that changing levels of smoking, relatively healthy diets and the benefits of the Welfare State made increased life expectancy “highly probable” for people born between 1925 and 1945. As a result group chairman Richard Willets expects a 34% to 60% rise on the current cost of purchasing an annuity beginning in 2019 for a male aged 65.
But mortality rates for young adults were found to be subject to “considerable uncertainty” due to threats of infectious disease and obesity.
The report called for better disclosure of mortality expectations by funds and for actuaries to adjust calculations sharply for pension schemes. This, it said, would allow more accurate assessments of the corporate risks posed by pension promises.
In a separate survey of 3000 people carried out by Watson Wyatt and YouGov more than 50% expected to have to retire later but less than one in five was willing to pay more than 2% more in tax or National Insurance to fund the ageing population.
But Watson Wyatt claimed an increase of 4.5% of gross domestic product was required to maintain current living standards for the elderly.
Watson Wyatt economist Jonathan Gardner said there was a general understanding that an ageing population would have potentially significant “macro-economic consequences”.
He said: “But people most definitely are not willing to pay very much out of their own pockets to solve problems. To those who will be relying on pay-as-you-go pensions and healthcare systems to pay for their retirement income and health needs, this is a sobering thought indeed.”
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