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


#populationpatterns

Professor Steve HabermanDean

Cass Business School

Welcome


#populationpatterns

Richard WilletsDirector of Longevity

Partnership


#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)


April 10, 2023

8


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.


April 10, 2023

9


• 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

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• 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)


#populationpatterns

Ben FranklinResearch Fellow

ILC-UK


#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



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?



How many of us are there?

Some key highlights from this years’ pack



…the shifting age structure of the UK’s population



Will I be poor in old age?



…comparisons across different households



Working age households have been particularly badly impacted by downturn



…retirement income has held up partly due to reliance on state pension which has risen in line with living costs



…benefit income particularly important for low income households



Spending on pensioner benefits to rise nearly 9% of GDP over long term



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



Many thanks

Ben Franklin

Research Fellow

International Longevity Centre - UK

[email protected]

02073400440

Twitter: @ilcuk

mailto:[email protected]

Professor Les MayhewProfessor of StatisticsCass Business School


#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.

10

12

14

16

18

20

22

24

26

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

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

9.5 years


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


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


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

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+

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

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.

0

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


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


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


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


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

-

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



• Downsizing may not suit everybody



• Downsizing may not suit everybody

• Well there is always the children!

Tom YoungerHead of Contributory State Pensions Analysis

Department for Work and Pensions


#populationpatterns

ILC-UK 2014 Factpack launch

A Population Patterns Seminar Series event, supported by Partnership

Thursday 17th July 2014


#populationpatterns

17Jul14 - ILC-UK Factpack Launch

Presentations & Public Speaking