For those outside the world of pensions, triple lock is perhaps a term from the sedate world of canal cruising holidays. However for pensioners of the future it is a term they should acquaint themselves with and the impact it has on their future prosperity.
This fairly new chestnut of the pension triple lock raised its head recently. Baroness Altmann, former Pensions Minister in the Cameron Government, has voiced the opinion that the triple lock would not be affordable after 2020. Baroness Altmann has been vocal on pension policy in the past few weeks, (well since she left Government), with her earlier comments on Tata Steel and pension provision. Yet what does the pension triple lock mean and why should our future pensioners care so much? Read more »
Spence & Partners, the UK pension actuaries and administration specialists, today shared its concerns that with figures from the ONS* showing newborn female babies are expected to live to 93, and male babies to at least 90, if pension savers don’t fully understand longevity risk (that they will outlive the funds in their pension pot) when planning their savings, they may be facing a long and financially difficult retirement.
David Bogle, Mortality Expert, Spence & Partners said: “People need to start understanding how their retirement prospects will be impacted by uncertainty around their own life expectancy. Research published last week by the Office of National Statistics (ONS) projected that in 50 years’ time newborns in the UK will be expected to live past 97 – life expectancy has vastly increased since previous generations, and this underlines the importance of fully understanding our own longevity risk and ensuring we are putting enough money aside. Unfortunately we just don’t expect to live as long as we will, and it is crucial that this is factored in to everyone’s retirement planning.” Read more »
Last time, I wrote about the latest mortality projections from the Continuous Mortality Investigation (“CMI”) and the effect this could have on pension scheme liabilities and that it may provide some relief for trustees and sponsoring employers. I then began to cover how mortality affects members of Defined Contribution (“DC”) schemes. This blog covers these issues in more detail.
In DC schemes, members pay contributions towards their own personal fund at retirement, referred to as the “accumulation” phase. When the member retires, they use that fund to finance their retirement, in pretty much whatever way they choose (i.e. the “decumulation” phase). The growing trend towards this process has prompted a joint paper by three actuarial bodies (the Australian Actuaries Institute, the Institute and Faculty of Actuaries and the American Academy of Actuaries), on the issue of longevity risk (“the Joint Paper”). Read more »
Over the past few weeks there have been some publications in the field of mortality that make for interesting reading. In this blog, I am going to focus on the Continuous Mortality Investigation (CMI) producing their latest mortality projections – which, quite surprisingly, showed that mortality rates were higher in 2015 than 2014.
In figures, because that’s what we actuaries like, 2015 mortality improvements are estimated to be around 2.3% p.a. lower for 18-102 year olds and around 3.2% p.a. lower for 65-102 year olds.
So, the 2015 figures alone show a slight reversal in the continual improvement in mortality seen over recent years, and highlight the slowdown in the rate of mortality improvements. We have seen this in previous versions of the CMI mortality projection model, with new models producing lower life expectancies than the previous iteration being the norm in recent years. Looking at the four year period from 2011 to 2015, average annual mortality improvements using the CMI model are estimated to be around 0.3% p.a. for the 18-102 age group and 0.1% p.a. for the 65-102 age group. Therefore, average life expectancy is estimated to have increased by around 3-4 months over the whole of the period between 2011 and 2015. In comparison, in the period from 2000 to 2011, life expectancy increased by around 3 months each year. This emphasises the potential slowdown in mortality improvements shown by the CMI model. Read more »