17Jul14 - ILC-UK Factpack Launch
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Transcript of 17Jul14 - ILC-UK Factpack Launch
ILC-UK 2014 Factpack launch
A Population Patterns Seminar Series event, supported by Partnership
Thursday 17th July 2014
This event is kindly hosted by
#populationpatterns
Welcome
Baroness Sally GreengrossChief Executive
ILC-UK
This event is kindly hosted by
#populationpatterns
Professor Steve HabermanDean
Cass Business School
Welcome
This event is kindly hosted by
#populationpatterns
Richard WilletsDirector of Longevity
Partnership
This event is kindly hosted by
#populationpatterns
Mapping demographic change – introductory comments
Richard Willets
ILC-UK factpack launch 17 July 2014
• Changes to the pension regime were announced in the March 2014 Budget
• Pensioners will have more choice in managing their finances in retirement
• Most people underestimate their likely lifespan in retirement
• The factpack highlights the fact that the oldest pensioners are most likely to be in relative low income
• Steve Webb (Pensions Minister): people should be given estimates of how long they are likely to live in retirement (April 2014)
• Agree – but ‘life expectancy’ is only an average
A further angle
April 10, 2023
6
Under-estimation of post-retirement lifespan
April 10, 2023
7
• Survey responses are based on research commissioned by Partnership (2014). Projected survival probabilities have been derived using the ONS ‘2012-based’ population projections for the UK.
Frequency distribution of expected lifespan (at age 65), UK femalesFrequency distribution of expected lifespan (at age 65), UK females
Up to 5 years
6 - 10 years
11 - 15 years
16 - 20 years
21 - 25 years
26 - 30 years
31 - 35 years
Over 35 years
0%
5%
10%
15%
20%
25%
30% Survey responses
Actual (projected)
Under-estimation of post-retirement lifespan
April 10, 2023
8
• Survey responses are based on research commissioned by Partnership (2014). Projected survival probabilities have been derived using the ONS ‘2012-based’ population projections for the UK.
Frequency distribution of expected lifespan (at age 65), UK femalesFrequency distribution of expected lifespan (at age 65), UK females
Up to 5 years
6 - 10 years
11 - 15 years
16 - 20 years
21 - 25 years
26 - 30 years
31 - 35 years
Over 35 years
0%
5%
10%
15%
20%
25%
30% Survey responses
Actual (projected)
• The most common survey response was 16-20 years – however the most likely lifespan in retirement is 29 years
• 14% of survey respondents thought they are likely to live more than 25 years. However, 55% of females are projected to live longer than 25 years.
• 6% of survey respondents thought they are likely to live more than 30 years. However, 36% of females are projected to live longer than 30 years.
Under-estimation of post-retirement lifespan
April 10, 2023
9
• Survey responses are based on research commissioned by Partnership (2014). Projected survival probabilities have been derived using the ONS ‘2012-based’ population projections for the UK.
• People tend to underestimate their lifespan and do not appreciate the degree of variance in post-retirement life expectancy
• 36% of survey respondents said they would put their pension fund in the bank and use it “as and when needed” (if they were to receive their fund in cash on retirement)1
• Countries with flexible retirement regimes are experiencing issues with pensioners depleting their funds (or borrowing against them)– US: Nearly one half of Baby Boomers are “at risk” of being unable to meet “basic” retirement expenditures 2
– Australia: total pension savings less household debt = zero3
• The new regime gives consumers increased choice and flexibility, but the possibility that pensioners will exhaust their pension savings too soon4,5,6
• With greater choice there is greater need for information/education/guidance/advice on longevity
The challenge
April 10, 2023
10
• Sources: 1 Partnership (2014); 2 Employee Benefit Research Institute (2010); 3 CPA Australia (2013); 4 David Blake as reported in FT (2014); Pablo Antolin as reported in FT (2014); Chris Daykin as reported in FT (2014)
Thank you
April 10, 2023
11
All information contained in this document is confidential and should be treated as confidential. No disclosure, use, copying or circulation of this document should occur without the permission of Partnership. Partnership retains all intellectual property interests association with this document. The content of this document is intended to provide general information. Examples and other materials contained within this document are for illustrative purposes and should not be relied upon. Partnership takes no responsibility for any errors or omissions in this document. This document shall not form the basis of, or be relied upon, in connection with any offer or act as an inducement to enter into any contract. No representation or warranty is given, express or implied, as to the accuracy of the information contained in this document.
Partnership is a trading style of the Partnership group of Companies, which includes; Partnership Life Assurance Company Limited (registered in England and Wales No. 05465261), and Partnership Home Loans Limited (registered in England and Wales No. 05108846).
Partnership Life Assurance Company Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Partnership Home Loans Limited is authorised and regulated by the Financial Conduct Authority. The registered office for both companies is Heron Tower, 110 Bishopsgate, London, EC2N 6AY.
Gregg McClymont MPShadow Minister (Work and Pensions)
This event is kindly hosted by
#populationpatterns
Ben FranklinResearch Fellow
ILC-UK
This event is kindly hosted by
#populationpatterns
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Mapping demographic change
A factpack of statistics from the ILC-UK
#populationpatterns
Ben Franklin, Research Fellow
International Longevity Centre – UK @ilcuk
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Annual compendium of statistics mapping demographic
change.
Produced as part of Population Patterns Series in
association with Partnership.
Covers issues from population growth to pensions, housing
and fiscal sustainability.
Sets the agenda for the ILC-UK’s future work.
This year’s focus is on pensioner poverty.
What is the factpack and what does it cover?
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
How many of us are there?
Some key highlights from this years’ pack
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
…the shifting age structure of the UK’s population
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Will I be poor in old age?
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
…comparisons across different households
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Working age households have been particularly badly impacted by downturn
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
…retirement income has held up partly due to reliance on state pension which has risen in line with living costs
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
…benefit income particularly important for low income households
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Spending on pensioner benefits to rise nearly 9% of GDP over long term
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
UK population set to continue growing to over 70 million by 2028.
Working age population will continue to rise in England but not other UK nations.
Pensioner poverty has fallen but can this fall be sustained especially in face of rising working age poverty and rising costs of benefit provision for older adults?
All govt spending projections are linked to projections of labour productivity growth (2.2% per annum) but this may be overly optimistic.
Raises questions about credibility of long-term spending commitments.
Key takeaways
The International Longevity Centre-UK is an independent, non-partisan think-tank
dedicated to addressing issues of longevity, ageing and population change.
Many thanks
Ben Franklin
Research Fellow
International Longevity Centre - UK
02073400440
Twitter: @ilcuk
Professor Les MayhewProfessor of StatisticsCass Business School
This event is kindly hosted by
#populationpatterns
Adjusting to increases in life expectancy–
Opportunities and challengesLes Mayhew
Faculty of Actuarial Science and Insurance Cass Business School
Questions arising
• Will life expectancy continue to rise at its present rate?
• How long will I live?• Will I have enough money to see me
through?• Is the financial services sector being
innovative enough?
Male and female life expectancy at age 60
Life expectancy at 60 has almost doubled since records began. Until1980 men were increasingly lagging behind but now they are rapidly catching up and may converge with females by 2030.
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1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020
Year
Lif
e ex
pec
tan
cy a
t ag
e 60
Males
Females
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020
Year
Dif
fere
nce
in f
emal
e-m
ale
life
exp
ecta
ncy
at
age
60 (
year
s)
This chart illustrates the rate of convergence between men and women
Until 1900 the difference in male-female life expectancy at age 60 was less than one year. The gap then grew reaching a maximum in 1977, since when it has been falling rapidly, But how high can life expectancy climb and which ages are most affected?
Gap highest in 1977
Splitting life expectancy into small chunks
• While we don’t know the limits to life we can estimate the chances of surviving a defined number of years
• E.g. using decomposition techniques we can calculate how many of the next ten years we might live
• This has important uses e.g. inheritance planning, downsizing, pensions, insurance, paying for social care
10-year male life expectancy at age 60
Males aged 60 can expect to live another 9.5 years compared with 8.5 years in 1950 so it effectively means they have a 95% chance of reaching age 70. So not much room for improvement here.
50 year olds
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1
2
3
4
5
6
7
8
9
10
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Year
10
-ye
ar
ma
le li
fe e
xp
ec
tan
cy
at
ag
e 6
0
60 to 70
9.5 years
10-year male life expectancy at age 70
Males aged 70 can expect to live 7.5 years of the next 10. This is up 2.6 years compared with 1950 when there was only a 50% chance of making 70. By 2050 it could be close to 100% if trends continue.
0
1
2
3
4
5
6
7
8
9
10
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Year
10
-ye
ar
ma
le li
fe e
xp
ec
tan
cy
at
ag
e 6
0
60 to 70
70-80
7.5 years
10-year male life expectancy at age 80
Males aged 80 can expect to live 4 years out of the next 10. This is 3 years more compared with 1950. By 2050 they could live 9.3 years if trend continues.
0
1
2
3
4
5
6
7
8
9
10
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Year
10
-ye
ar
ma
le li
fe e
xp
ec
tan
cy
at
ag
e 6
0
60 to 70
70-80
80-90
4 years
10-year male life expectancy at age 90
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1
2
3
4
5
6
7
8
9
10
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Year
10
-ye
ar
ma
le li
fe e
xp
ec
tan
cy
at
ag
e 6
0
60 to 70
70-80
80-90
90-100
A male aged 90 can expect to live only one year out of the next 10, but this is poised to change if current if trend continues, However, this prediction is less well founded
1 year
10-year male life expectancy at 100+
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1
2
3
4
5
6
7
8
9
10
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Year
10
-ye
ar
ma
le li
fe e
xp
ec
tan
cy
60 to 70
70-80
80-90
90-100
100+
Less than one year
At age 100 there is still very little sign of growth but cannot be ruled out
‘Jam-jar’ model of life
The process can be likened to a series of jam-jars gradually filling up over time. Since 1990 they have been filling up much more rapidly.
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2
4
6
8
10
12
60-70 70-80 80-90 90-100 100+
Age group
Yea
rs o
ut
of
10
Available years
Years to be added 2010 to 2030
Actual years added 1950 to 2010
Completed years by 1950
With or without centenarians?
The future uncertainty is mainly due to not knowing the contribution of centenarians to life expectancy at age 60. Until 2040 it does not make much difference to the predictions but it is still relevant to people turning 60 from now on.
0
10
20
30
40
50
60
1940 1960 1980 2000 2020 2040 2060 2080 2100
Year
Ma
le li
fe e
xp
ec
tan
cy
at
ag
e 6
0
Scenario 1: Few centenarians
Actual male life expectancy at 60
With or without centenarians?
The future uncertainty is mainly due to not knowing the future contributions of centenarians to life expectancy at age 60. However, at least to 2040 it does not make much difference but this is still relevant to people turning 60 now and in the future
0
10
20
30
40
50
60
1940 1960 1980 2000 2020 2040 2060 2080 2100
Year
Ma
le li
fe e
xp
ec
tan
cy
at
ag
e 6
0Scenario 1: Few centenarians
Scenario 2: Many centenarians
Actual male life expectancy at 60
Key conclusions – a summary• Most future growth in life expectancy in
retirement will come between ages 70 and 90• Life expectancy beyond 100 years of age is
increasing very slowly and so will not contribute as much as was thought
• Age at death will tend to increasingly cluster in early 90s as the age of death of men and women converge
• Decomposition gives us more precision and flexibility in terms future trends and is another tool for retirement planning
Income draw down and the life expectancy conundrum
Assume a person takes his or her pension pot worth £100,000 at age 60 and decides on income draw down. How should they budget?
0
5
10
15
20
25
30
60 65 70 75 80 85 90 95 100
age
Mal
e li
fe e
xpec
tan
cy o
n r
each
ing
giv
en a
ge
Income draw down and the life expectancy conundrum
At age 60 a male could expect to live another 23 years so crudely he would spend down at a rate of 1/23rd of his pot each year before interest or tax
0
5
10
15
20
25
60 70 80 90 100 110
age
fem
ale
life
expe
ctan
cy o
n re
achi
ng g
iven
age
Income draw down and the life expectancy conundrum
Life expectancy is an average. Each year he survives he gets another extension e.g. if he survives to when he was supposed to die at 83 he gets another 7 years. Someone has put more grains of sand in the egg-timer!
0
5
10
15
20
25
60 65 70 75 80 85 90 95 100
age
Mal
e li
fe e
xpec
tan
cy o
n r
each
ing
giv
en a
ge
Income draw down and the life expectancy conundrum
By the time he reaches 90 what was previously life expectancy at 83 has jumped by another 4 years.
0
5
10
15
20
25
60 70 80 90 100 110
age
Mal
e li
fe e
xpec
tan
cy o
n r
each
ing
giv
en a
ge
Income draw down and the life expectancy conundrum
So what started out as a simple budgeting problem has turned into something more complex – which is why annuities were invented!
0
5
10
15
20
25
60 65 70 75 80 85 90 95 100
age
Mal
e li
fe e
xpec
tan
cy o
n r
each
ing
giv
en a
ge
Selectioneffect
Income draw down plan at 60 based on life expectancy
A person with a pot of £100k could draw down some money each year and re-invest the rest. By considering his life expectancy at each age and proportioning his spend accordingly his profile could look like this. But by age 71 the pot will have shrunk by half.
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
60 65 70 75 80 85 90 95 100
Age
An
nu
al d
raw
do
wn
£s
Pension pot half-life
Income draw down plan at 60 based on life expectancy
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1,000
2,000
3,000
4,000
5,000
6,000
60 65 70 75 80 85 90 95 100
Age
An
nu
al d
raw
do
wn
£s
If he kept his remaining pot in an interest bearing account he could extend his budget and his pot considerably but pot would still shrink to half its size by age 80.
Pension pot half-life
Income draw down plan from 60 based on life expectancy
-
1,000
2,000
3,000
4,000
5,000
6,000
60 65 70 75 80 85 90 95 100
Age
An
nu
al d
raw
do
wn
£s
For the longest lived there could be an income gap. One solution to this would be to annuitize or draw down a proportion of the value in the home using equity release e.g. see ‘The Equity Bank – Towards income security in old age’
Income gap
How well are we prepared?
• We are living longer, but are we planning for it better?
How well are we prepared?• We are living longer
but are we planning for it better?
• New flexibilities imply greater choice and discretion
How well are we prepared?• We are living longer but
are we planning for it better?
• New flexibilities place greater responsibility and provide greater choice
• Average pension pots are small and must last for longer
How well are we prepared?• Using the value in the
home becomes more important, more so in later retirement
How well are we prepared?• Using the value in the
home becomes more important, more so in later retirement
• Downsizing may not suit everybody
How well are we prepared?• Using the value in the
home becomes more important, more so in later retirement
• Downsizing may not suit everybody
• Well there is always the children!
Tom YoungerHead of Contributory State Pensions Analysis
Department for Work and Pensions
This event is kindly hosted by
#populationpatterns
ILC-UK 2014 Factpack launch
A Population Patterns Seminar Series event, supported by Partnership
Thursday 17th July 2014
This event is kindly hosted by
#populationpatterns