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 Greengross
Chief Executive
ILC-UK
#populationpatterns

Professor Steve Haberman
Dean
Cass Business School
Welcome
#populationpatterns

Richard Willets
Director 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
July 14
6

Under-estimation of post-retirement lifespan
July 14
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 females
0%
5%
10%
15%
20%
25%
30%
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
Survey responses
Actual (projected)

July 14
8
Frequency distribution of expected lifespan (at age 65), UK females
0%
5%
10%
15%
20%
25%
30%
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
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.
July 14
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 expenditures2
– 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
July 14
10
• 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
July 14
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 MP
Shadow Minister (Work and Pensions)
#populationpatterns

Ben Franklin
Research 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
benfranklin@ilcuk.org.uk
02073400440
Twitter: @ilcuk

Professor Les Mayhew
Professor of Statistics
#populationpatterns

Adjusting to increases in life
expectancy–
Opportunities and challenges
Les Mayhew
Faculty of Actuarial Science and Insurance

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
Lifeexpectancyatage60
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
Differenceinfemale-malelife
expectancyatage60(years)
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-yearmalelifeexpectancyatage60
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
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
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
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-yearmalelifeexpectancy
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
Yearsoutof10
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
Malelifeexpectancyatage60
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
Malelifeexpectancyatage60
Scenario 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
Malelifeexpectancyonreachinggivenage

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
femalelifeexpectancyonreachinggivenage

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

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

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
Selection
effect

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
Annualdrawdown£s
Pension pot
half-life

Income draw down plan at 60
-
1,000
2,000
3,000
4,000
5,000
6,000
60 65 70 75 80 85 90 95 100
Age
Annualdrawdown£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
-
1,000
2,000
3,000
4,000
5,000
6,000
60 65 70 75 80 85 90 95 100
Age
Annualdrawdown£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?

• We are living longer
but are we planning
for it better?
• New flexibilities imply
greater choice and
discretion

• 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

• Using the value in the
home becomes more
important, more so in
later retirement

home becomes more
later retirement
• Downsizing may
not suit everybody

home becomes more
later retirement
• Downsizing may not
suit everybody
• Well there is always
the children!

Tom Younger
Head of Contributory State Pensions Analysis
Department for Work and Pensions
#populationpatterns

17Jul14 - ILC-UK Factpack Launch

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