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Playing Cards With The Reaper

Late News – Gill Cardy's Fundraising Walk, 21st-25th May – Click Here


Gillian Cardy

This Year’s Pension Reform Has Brought Out the Suspicious Actuary in Gill Cardy

Steve Webb ranks as one of the better informed and effective ministers on pensions policy, which has been the poison chalice portfolio for a series of politicians.  Anyone who has heard him speak is usually impressed by his grasp of the subject.  His announcement that the biggest barrier to pension saving – the requirement to buy an annuity – would be removed is indicative of a radical approach to confronting the pensions crisis and the savings gap.

When this bombshell hit the headlines back in March, the downside was that pension funds would be ‘wasted’ on Lamborghinis.  Hmmm, perhaps if we can incentivise the British public to ‘waste’ their pension funds on Aston Martins, TVRs and Morgans, which boost UK GDP and provide British jobs, it won’t be such a bad decision?

What’s Your Sell-By Date?

More seriously, Webb proposed providing the public with information on how long this pot of money was supposed to last.  Well, providing the public with yet more information is an interesting idea when we know they don’t pay attention to what we already give them.  But also providing each pension investor with his or her ‘date of death’ at their retirement date was regarded by many as laughable.

That’s unfair. We in financial services know that statistics lie at the heart of so much of what we do.  Mortality, morbidity, postcodes, age, sex, smoker status, occupation, health, height, weight and medication all have an essential impact on the products and services we can access – and on how much we pay for them. 

And yes, every statistic which takes a population and averages the results ‘ignores’ outliers: the woman who dies tragically young, the man who lives into his nineties in perfect health in spite of a 30-a-day habit.  But laughing off the plans to provide the date of death completely misses the point. 

A Moving Statistical Target

The most significant point about human mortality is that my date of death is a moveable feast. 

A newborn baby boy could expect to live to 79 and a baby girl to 83, if mortality rates stay the same as they are today throughout their lives.  But by 2035 life expectancy at birth is expected to reach 83 for males and 87 for females – and, if you allow for projected changes in mortality throughout life, expectancy changes to 94 and 97 respectively. 

Worse, life expectancy at age 65 increased by 40% for men in the 30 years between 1980 and 2010, and by 23% for women over the same period.

Save Early, Save Often

Finding out my life expectancy at 65, or state pension age, or when I encash my pension fund is too late in the day.  Yes, I could be one of those retirees who drops dead on that retirement world cruise with thousands in the bank. But what would be much, much worse, for me and for the state, is if I was one of those people who survived long enough to witness an increase of another 23% in my life expectancy, with no adequate financial plan in place which ensured that I had sufficient resources to pay for my ever-longer life.

 

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