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Life expectancy falls could boost annuity rates

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Written by:
07/03/2019
Average life expectancy has fallen slightly, according to the Continuous Mortality Institute, but it may spell good news for savers.

The Continuous Mortality Institute (CMI) is part of the Institute and Faculty of Actuaries (IFoA). It has lowered its estimate of UK life expectancy, with life expectancy at age 65 six months lower than in previous analysis for both men and women.

This may benefit those buying an annuity. Longevity expectations, along with prevailing interest rates and government bond yields, will influence the price of annuities. Shorter life expectancies should lead to higher rates.

Although life expectancy improvements have ground to a half in recent years, men can expect to live for a further 21.9 years after 65, while women will live another 24.2 years.

Tom Selby, senior analyst at AJ Bell, said: “There is an increasing body of evidence pointing to a slowdown in life expectancy improvements.

“If this were to continue over a longer period of time it could have profound implications both for individuals and society as a whole. It could also fundamentally affect projections around Government spending in a number of areas, particularly in relation to the state pension and social care.

“It is somewhat ironic that this latest downgrade in life expectancy projections comes the day after the first increase in the state pension age came into force. If life expectancy improvements stall or even go into decline, questions about whether future increases in the state pension age should be implemented will inevitably grow louder.

Steven Cameron, pensions director at Aegon, said: “While the life expectancy figures for males and females have fallen slightly again, they still show men age 65 will on average live till 87 and women to 89. The decline in defined benefit pensions, means people are no longer guaranteed a pension income for life other than the state pension. Under pension freedoms, people are increasingly choosing flexibility but in doing so taking on responsibility for using their pension pot across an unknown future lifespan. Taken together, it means people more than ever before need a realistic understanding of how long their retirement may last.”

 

 

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