Mortality improvements in the noughties may have been the blip
Higher health and social care spending between 2000 and 2010 may have caused a blip in longevity estimates by accelerating improvements, according to Barnett Waddingham.
The recent slowdown in estimates may be simply due to lower spending in this sector following the financial crisis, the consultancy added. As a result, current predictions may actually be returning to a normal pathway.
The suggestion comes as the Continuous Mortality Investigation (CMI) published its latest tables on longevity assumptions, which revised down life expectancy assumptions from its 2015 models.
For a male turning 65 on 1 January this year, the estimated life expectancy was 22.2 years, down from 22.5 years in last year's tables. For women, this fell from 24.6 years to 24.1 years.
Speaking at the consultancy's trustee conference on 28 March, associate Jon Palin pointed to higher health spending during the Labour governments as a possible reason for the high improvements.
"Why did we see such exceptionally high improvements from 2000 to 2010?" he said. "Perhaps these are the strange improvements. One possible explanation is when you look at health spending.
"Since 2009, we have seen flat spending on health and we have seen lower mortality improvements. We could never prove how strong that link is [but] it seems to me that this is more than coincidental.
"Spending on health and social care budgets has been a strong driver of improvement to 2010 and a reason for the low improvements since."
However, he added the financial crisis, and ensuing austerity measures, may also be a driver, although this is difficult to quantify.
Palin said a better understanding of international trends would inform the potential causes for the changes.
"We have seen a slowdown in most countries around the world," he continued. "Probably, through the course of the next year as we get more data from 2016 from other countries, we can say much more firmly the experience in this country has been similar."
Palin's comments somewhat support the wider industry recognition that the lower mortality improvements in recent years cannot be considered as a blip.
Willis Towers Watson senior consultant Stephen Caine agreed other factors may be at play here.
"It appears that mortality rates improved modestly in 2016, but only after worsening significantly in 2015, leaving mortality rates roughly where they were in 2011," he said. "Another year of heavy mortality strengthens the case that the stall in improvements is not just a blip but could be due to longer team factors.
"This makes it harder for those in charge of pension schemes to judge the correct assumption for future changes in life expectancy. At a time when many pension schemes are looking to reduce volatility within their portfolios, further developments in life expectancy are perhaps more uncertain than at any point in the last two decades."
Aon Hewitt head of longevity Tim Gordon said pension schemes may find it more difficult to hedge longevity risk.
"It is increasingly difficult to argue that the fall-off in national mortality improvements since 2011 is simply a blip," he said. "With changing or incomplete data, there remains a risk that schemes considering hedging their longevity risk may end up with poor pricing, or make a decision based on out-of-date information.
"We are continuing to work with schemes, insurers and reinsurers to build a wider consensus on future mortality improvements and to ensure fair and efficient pricing in the longevity market."
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