Sting in the tale - Great Expectations
It was my father-in-law's 80th birthday the other day and we had a big party to celebrate the event. Even at 80 he remains interested in pensions although he's now five years too old to be saving in one because of our ludicrously outdated approach to what being older is all about these days. He’ll probably be intrigued to hear there's just been a new report presented to the actuarial profession that is forecasting yet another dramatic increase in life expectancy over the next 40 years. The report states that mortality at age 70 could fall by as much as three-quarters by 2040.
Not only that, even the relatively short-term projections are amazing. Mortality at age 80 looks set to fall by more than one half over the next 20 years. If these projections hold, then 80 year-olds in 2040 could be experiencing the same mortality rates as 60 year-olds did in the 1970s. If that doesn't mean we need to rethink what retirement is all about I don't know what does. It certainly makes retiring at age 50 look silly.
The reason the actuaries have yet again reviewed their projections is that they are now able to factor in the result of lower rates of smoking and the eradication of many infectious diseases. Obviously, the way general medical advances are coming on stream these days, it seems that this trend of longer and more active lives being enjoyed by millions of people is only likely to keep getting better and better. None of this means any of us are going to live forever, but it does indicate that more and more of us are going to live much longer lives than people used to a century or so ago. We already do, in fact. It's just a question of how far that particular envelope can be pushed out by medical and social advances.
While this is really good news and it means that many more people will be staging 80th, 90th and even 100th birthday parties in the near future, it's going to have the effect of putting up the cost of the pension promises that employers and the government are making to the current workforce. Final salary pension schemes aimed at providing pensions for people in their early sixties will effectively have to pay the price for handing out pensions to people who will soon best be described as being middle-aged. That we will have to have a serious rethink around what pensions and retirement are all about in the 21st century seems to me to be beyond doubt.
The actuaries' report coming close on the heels of the government's U-turn on increasing the retirement ages for public servants is interesting, particularly in light of the official figures just released showing such an increase in the number of public sector workers over the last few years. Sooner or later we will have to face up to the real costs of the benefit promises being made.
I've heard some people saying that with the way the combination of education with gap years extends into young people's late twenties these days, 30 is now the new 21. I'm sure that's right. Just as I'm sure that 80 will one day be regarded as the new 65.
First published in Pensions Week, 7 November 2005