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Life expectancy statistics: handle with care

For financial professionals only

A theme in our work on retirement planning over the last few years has been drawing attention to the data about affluent clients living longer. Last month, widely reported headlines about new ONS life expectancy statistics seemed to suggest that life expectancy is falling. What’s going on?

The ONS bulletin concerned was published on 23rd September and contained the most up to date period life expectancy tables for the UK, based on data covering 2018-20(1).

The key word here is ‘period’. Period life tables reflect life expectancies based on actual death data in an observed period, and in this particular period we’ve experienced the first global pandemic in a century. Due to the excess deaths in the period under review, the tables reflect a fall in life expectancies. But this should not tempt planners to use lower life expectancies in their modelling.

When considering the life expectancy of an individual or a couple in financial modelling, what’s likely to happen in the future is the crux of the problem. This is why looking at future life expectancies or ‘cohort life tables’ is a preferable approach. The last time ONS issued cohort life tables was in December 2019. They’ve not stated when their next forward-looking research will be released. These tables are helpful when evaluating how long a client who is many years away from retirement today may expect to live when they stop working.

But there’s a further complexity. The cohort based, forward looking data released in 2019 showed rising expectations in life expectancy at 65 for both genders over coming years, but for these increases to be less than previously forecast(2). Here is the chart for men.

This is where the problems of averages need to be considered. First, national life tables look at the average picture, rich and poor alike. The chart above shows that we’re coming to terms with having to be less optimistic for longevity for the population as a whole, considering the impacts of austerity. For those who can afford advice, data on their forward-looking life expectancies is what’s needed for financial planning. And that’s what Parmenion supply on our platform through Income Management Tool (IMT), an actuarial retirement planning tool. We share Club Vita’s life expectancy figures, which are sourced from the life outcomes of the UKs Defined Benefit pension members, a much more representative section of society for financial planning purposes than data based on everyone.

Here’s a summary of the differences in these three data sources, based on a husband and wife living in the BA14 postcode. Club Vita data is detailed down to the area where people live which has its own impact on life expectancy.

Life expectancies Data source
Individual ONS 2019 Period tables ONS 2018 Cohort tables Club Vita
Male, born 1960 83 85 88
Female, born 1962 85 87 91

There’s a final point about all these figures. When it comes to planning for retirement, these forecast mortality ages are at the centre of the distribution of outcomes – so the numbers don’t, on their own, give you a feel for your risk of living a very long time indeed.

And that’s one test to apply when evaluating capacity for loss in a retirement income plan. A very interesting footnote in the September 2021 bulletin was that despite a pandemic, the number of centenarians in the UK has risen by 20% over the previous 3 years. Keeping an eye on this risk is key to confidence when answering the central questions in retirement planning – ‘Do we have enough money?’ and ‘Will we be alright?’.