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Abraham Okusanya: The irresponsible absurdity of new longevity theories

Annuity providers are wrong to use such sci-fi, scaremongering sales tactics 

Ancient scholars would have us believe Methuselah lived to a staggering 969 years, making him the oldest person in history. Little wonder the name became synonymous with longevity.

British gerontologist Aubrey de Grey coined the term “Methuselarity” – a blend of Methuselah and singularity – to describe a future where all medical conditions that cause human death would be eliminated.

Grey is vice president of a US-based biotech firm that applies technology to curing age-related diseases. He believes medical technology will eventually lead to human death only occurring by accident or homicide.

If any of this sounds like science fiction to you, you are not alone. While I do fancy being immortal, the reality of this in my lifetime is rather far-fetched. After all, median life expectancy at birth has increased by about 25 years within the last 100 years.

What new longevity measures mean for retirement advice

So, imagine my reaction when it was suggested at a recent event I attended that people in their 60s today should expect to live to 150, and that we should somehow account for this kind of extreme longevity in retirement planning.

This absurd argument is also used as a reason why buying an annuity should be favoured over a sustainable withdrawal framework for drawdown. What the salesperson often fails to mention though, is that, in the event people in their 60s today do live to even 120, annuity providers themselves will be in serious trouble.

An annuity is not a magic money tree. If today’s average annuitants live well beyond their current life expectancy, providers would see their liability grow enormously. So will defined benefit schemes.

Remember, we are not talking about a few years increase here, we are talking 30 to 50 years improvement within a very short period. And presumably, if people start to live that long, they will delay annuity purchases, which makes it harder for life cmpanies to subsidise old rates with new ones.

What is more, since over 90 per cent of annuity purchases are not indexed-linked, inflation will do untold damage to income for people over a 40 or 50 year retirement period. An income of £10,000 per annum in 1977 had the buying power of £1,955 by the end of 2017 – a reduction of 80 per cent using CPI.

Gregg McClymont: Just what is going on with life expectancy?

The point I am making is that, while there are several good reasons for buying an annuity, sci-fi scaremongering around extreme longevity is not one. Neither annuities nor drawdown would be a failsafe edge against such a risk.

The sustainable withdrawal framework already accounts for the tail-end of longevity risk. This involves planning to an age where the client has only between 10 to 20 per cent probability of surviving, based on the Office for National Statistics mortality projection.

Under the sustainable withdrawal framework, a 65-year-old should be planning to age 95. An inflation-adjusted withdrawal of £3,000 from a £100,000 portfolio of 60 per cent global equity and 40 per cent bonds lasted from age 65 to 100 in 80 per cent of historical scenarios between 1900 and 2017. And, yes, that is after accounting for 1.5 per cent in fees.

In any case, if the medical technology was to become so profound as to improve longevity significantly, is it such a leap to think this will result in longer working lives and retirees, now cured of their ailments, being able to return to the labour market?

What is more, the technology that drives this sort of improvement will presumably deliver handsome returns for those invested in the capital markets, of which a drawdown investor is one.

Good retirement planners already account for reasonable longevity improvements. But obsessing over the likelihood of extreme longevity is unhelpful and does not aid financial planning in any way.

Abraham Okusanya is director of Finalytiq


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Graham Gingell 26th July 2018 at 1:37 pm

    Well said Abraham.

  2. I have to say that I do not normally comment on articles like ths, but I have really enjoyed reading your article. Many thanks for sharing your thoughts. Ian

  3. Spot on Abraham, sensible long term planning depends though on the understanding by the client and without decent Advice, clients do tend to make big errors in judgement. I fear that with Drawdown now the preferred option many will run out well before 95 if they are on the non advice process

  4. It seems a combination of secure income and drawdown might optimise the client outcome. Purchase a guaranteed lifetime income for essential spending .Invest the rest for growth global equities. Each year phase buying more guaranteed income to inflation proof and reduce drawdown sequence risk.

  5. Good article Abraham. Increased longevity beyond 100 without a corresponding increase in sub saharan Africa and other areas will increase inequality and global instability. I don’t want to live past 100 and perhaps we need to start having debates about rights of individuals to a minimum term of life for which clean water and sanitation are what are needed rather than advances in medical science to prolong a life which has already been lived.

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