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Life expectancy plateau has planning implications

25 September 2018

Life expectancy has stalled for the first time on record, the latest government statistics have shown, with potential implications for financial planning and government changes to the State Pension Age. 

Data from the Office for National Statistics shows that females born between 2015 and 2017 have an average life expectancy of 82.9 years old, while male life expectancy is 79.2 years old, unchanged from the 2014-16 figures.

Steven Cameron, pensions director at Aegon, said while the figures raise “real questions” around whether year on year improvements in life expectancy, previously taken as a ‘given’, are grinding to a halt, “it would be risky to draw conclusions based on differences over a 12 month period, but the real question is whether we can expect a longer term trend towards flatlining or even declining average life expectancies.”

Tom Selby, senior analyst at investment platform AJ Bell, said: “The decline in life expectancy improvements in recent years will undoubtedly cause concern across the political divide and identifying the cause of this shift should now become a priority for all parties. However, we have seen decades of improving life expectancy and despite this falter in the figures, savers need to prepare for a 100-year life and the financial implications that brings.”

Selby said the government’s primary focus will be upon the provision of healthcare and the state pension.

He continued: “With more people expected to draw their state pension for longer, the question of how to ensure continued sustainability remains at the forefront of policymakers’ minds. The triple-lock, which links the state pension to the highest of average earnings, inflation or 2.5%, looks like an incredibly generous guarantee in this context and seems certain to be scaled back at some point in the near future.”

Jon Greer, head of retirement policy at Quilter, says an ageing population has placed additional pressure on public finances and those looking after ageing family members.

“With the social care system inadequately equipped for an ageing population and insufficient pension provision beginning to crystallise, policymakers and businesses will be monitoring life expectancy trends closely,” Greer said.

He added: “We still need a sustainable social care policy and the pressure on the state pension and company pensions won’t be going anywhere. With a Budget approaching, pressure remains on policymakers to provide practical policy solutions to tackle the issues an ageing society brings.

“Those trying to figure how much they need to save for retirement are faced with what appears to be an impossible equation. There are numerous variables and there will be no perfect answer for everyone, so for many people working from where they would like to end up, and working backwards from there, will probably deliver the most helpful picture of how much they need to save.”

Cameron added:  “In today’s world, preparing for retirement is uniquely challenging because it involves planning an income for an unknown period of time. The pension freedoms have made it absolutely critical that individuals with help from advisers have the right information and tools to plan for retirement, especially when it comes to estimating how long their pension pot will need to last. These ONS figures are, of course, averages and an individual’s life expectancy will be affected by many factors including health, genetics and lifestyle. So using averages to plan your retirement finances, without allowing for the potential to outlive the average, could be very risky.”

In respect of the State Pension Age, he suggested the new figures have “big implications for Government finances”, and with government having already announced increases to the state pension age based on an expectation of increasing life expectancy, “today’s figures may be used to challenge the timing or indeed need for planned increases to 66, 67 and 68”.

 

Professional Paraplanner