1946 was a turning point for pensions, but how many in post-war Britain realised how significant a year it would be?  In 1946, after six years of relative quiet, Britain’s maternity wards were suddenly filled once again.   Every tiny wail marked the arrival of a baby boomer, and midwifery became the first of many new post-war growth industries.   Born into a world of ration cards and reduced supplies, baby boomers could still look forward to longer, better lives.  And of those born in 1946, we now believe some eight or nine in every ten have survived to reach their seventh decade.

I say ‘believe’ because we have no hard data to support this, only estimates.  By 1951, the UK actuarial profession had begun charting the remarkable changing expectations of life spans of pensioners with the first of a series of mortality tables.  But they did so without the benefit of a national database.  While the UK government registers births and deaths, it does not track its population. So we know very little about what happens to our fellow citizens in between.  Today, the statistics on how many people are actually alive in the UK at a particular age still rely on census estimates. These are collected every 10 years but are subject to various distortions. 

We know that average life spans have been stretched by a whole decade:  men rising from 77 years to almost 88 years and women from 81 years to 91 years.   Baby boomers particularly, are enjoying longer lives due in part to medical advances such as statins, the cholesterol-reducing drugs that having been making the news recently.  Medical advances are important, and in some cases miraculous.  But the evidence we have suggests that healthier lifestyles – better nutrition, less smoking – may play an even more considerable role in extending longevity.
[Insert Figure 1]

Today, our baby boomers may be making their most significant social contribution yet. As they move into retirement, baby boomers are starting to change the shape of the UK’s pensioner population dramatically because of their improved longevity. No one knows whether recent trends will continue, though some anticipate adding another three years onto to UK life expectancy as future data comes through.   But there is a great deal of variation around the ‘average’: as individual biological clocks tick at different speeds.   Meanwhile, it is becoming clearer that while increasing longevity is cause for celebration, it comes with economic strings attached.

Many retired baby boomers are enrolled in company pension schemes where longevity is now one of the biggest unknowns facing trustees. The duration that a pension is in payment has a direct impact on the bottom line of any pension scheme.  Based on what we currently know, a pension starting at age 60 will tend to be in payment for at least 50 per cent longer than expected in the 1950s.   So if you are responsible for a pension scheme that was set up in the 1950s you see longevity in cold, hard numbers, posing a risk that must be managed.

The trouble is that to date, the pensions industry has been basing its longevity figures on averages produced by data from insurance companies.  Insurance policyholders tend to represent higher socio-economic groups, whereas pension scheme members tend to represent a diverse cross-section of the population.  So we’re not entirely sure what margin of error to apply. The challenge before us is how to convert longevity from an ‘unknown’ to a ‘known’ so that trustees can monitor and react to it.  It is my hope that new statistical propositions offered by Club Vita and others, will become early warning systems offering complementary cross-referencing to existing data.

Launched this month, Club Vita is the first ever longevity comparison club for pension fund trustees. The robust data set now assembled takes in more than 1.4 million members of occupational pension schemes going back more than 15 years.  I am assured that it is the first time anyone has been able to look at rates of improvement in life expectancy for occupational pension schemes. Already, we are seeing rich information coming through from early analysis of this collaboration. 

For one thing, it seems we’re now gaining another two years of longevity each decade. (That’s another twelve minutes every hour.)  We also see clear evidence that men are indeed closing the gap on women.  Gender seems to account for three to four years variation in our lifespan.  But lifestyle, affluence, occupation and retirement type could account for as much as seven years’ variation in how long we live. We know that postcodes are significant. But our early findings suggest that by combining postcode with final salary, we can forecast longevity even more precisely.  Postcodes also seem to be a joint proxy for lifestyle and affluence, so the Club Vita team is now separating these factors in order to learn more.
[Insert Figure 2]

As economic conditions weaken, longevity risk provision has become increasingly expensive for pension schemes.  Club Vita’s early results show that it is possible to improve on the statistical tools already at our disposal.  By investing in twenty-first century tools, trustees will no longer have to put their faith in heroic assumptions.

Figure 1: Life expectancy of a 60 year old pensioner

Figure 2: Club Vita chart showing variation in life expectancy