View more on these topics

John Lawson: Getting it right on longevity


If recent research by The Platforum is correct, this year will see advisers recommend more clients opt for income drawdown rather than annuities.

Such a wholesale shift in the recommended solution will also require an advice process that addresses all of aspects of drawdown. Aspects that people who had previously bought annuities are less familiar with.

One of these is longevity, which translates in the income drawdown advice process as “how long my money needs to last”.

Recent research we conducted shows people may underestimate their longevity by up to eight years. We asked 50-65 year olds how long they expected to live once they retired, with men saying 15 years and women saying 19.

Comparing this with insured mortality data at age 65 indicates that men may live over six years longer than they expect and women more than four years. That is without factoring in any improvement in mortality that might occur over the next 25 years.

For people in good health, the difference between expected and actual longevity is even more, at eight years for men and almost five years for women.

When considering longevity, it is therefore important to take into account the circumstances of the individual rather than use broad-brush national data.

Are they a saver? In this case, insured lives data is more appropriate. Are they in good health? If so, an appropriate adjustment should be made to reflect that, and so on.

While predicting the life of any one individual is impossible, advisers will need to demonstrate their advice processes looked at the probabilities of a long retirement versus a shorter one and the reasons why this might be true.

Non-smokers in good health at age 65, whose parents lived well into their Nineties, have a higher likelihood of living longer than average.

The most common (modal) ages of death are 89 for men and 90 for women. However, 32 per cent of men and 37 per cent of women will live longer than this, well into their mid-Nineties. With this in mind, a more cautious initial approach that expects savings to last for 30 years rather than 20 or 25 would be more appropriate for people who have a high probability of being in this third of the population.

At the other end of the scale are people who have a higher likelihood of dying younger than the average. Ensuring people who fall into this group spend enough over their shorter-than-expected life, may form an important part of their financial plan.

Life expectancy is also a moving feast. The longer we live, the longer our life expectancy. This is not just down to improvements in healthcare as we age but is also due to the statistical truth removing those who die in early retirement increases the average life expectancy of those who survive.

But this is more than just a statistical phenomenon. A man who was expecting to live to 86 years at 65 will find they now expect to live to 90 years upon reaching age 80. This continual improvement in longevity means money plans need to be adjusted to take into account the longer period over which it needs to last.

John Lawson is head of pensions policy at Aviva 



ABI promotes Yvonne Braun to long-term savings director role

The Association of British Insurers has promoted Dr Yvonne Braun to director of long-term savings policy. Braun, who was previously head of savings, retirement and social care, has led the ABI’s policy development in the wake of the Budget pension reform announcement. She joined the ABI in 2006, having previously held roles at Goldman Sachs […]

Griffith-Jones-John-FCA-2013 700x450.jpg

FCA chairman: £60k closed book PR cost was ‘insurance policy’

FCA chairman John Griffith-Jones says the £60,000 cost of external PR advice for the inquiry into the regulator’s bungled announcement of its review of closed book business was a “responsible insurance policy”. Under questioning from the Treasury select committee today, Griffith-Jones was asked to justify the £3.8m cost of the review, which includes £60,000 to […]


Malcolm McLean: Change is the only constant for pensions

The Japanese have a single word for it: kaizen. It means “constant and never-ending improvement”. Kaizen is from the Japanese words kai and zen, where “kai” means change and “zen” means good. If we follow the Japanese way of thinking we can assume that change is to be expected, it is generally a good thing […]


Nick Bamford: Have we hit regulation saturation point?

Many, many years ago, when IFAs were regulated by a body called FIMBRA, the firm at which I worked had a supervision visit. This was important to us, not least because the managing director was himself on the FIMBRA board. The visit went well apart from the fact we found we were in breach of […]


Guide: day-to-day tasks ​— can your system manage?

This guide from Johnson Fleming will take you through the required communication and also give ideas for additional actions that will ensure your auto-enrolment project is a success. As well as highlighting what is required from a system to ensure it is up to the tasks, an overview of the following is also provided: data validation; data categorisation; employee communication; opt-in process; opt-out process; produce contribution schedule; contribution reconciliation process; upload of member data to pension provider; upload contribution to pension provider; manage salary sacrifice process; enrolment process; re-enrolment process; and management of increased employee queries.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm