Taking a closer look at the slowdown in longevity projections
09 Jul 2018 - Estimated reading time: 5 minutes
A continued slowdown in longevity improvements at the national level means many bulk annuity writers are under pressure from shareholders and analysts to reflect this in reserving and release capital for dividends. Pricing views are varied – with at least some in the market happy to give credit for a period of continued low improvements.
But how much do we really know about this slowdown?
Two features are apparent:
- At the national level the 2010s are looking to be the first ‘lost decade’ (where life expectancy does not materially increase) since the 1960s
- More affluent pensioners have been resilient to the slowdown
Whilst the slowdown is universally acknowledged, there is more debate on the picture by socio-economic background. Analysing trends by grouping locales with similar deprivation levels suggests this slowdown has impacted all the socio-economic groups. This is seen both in the national data analysed by the CMI and within the Club Vita dataset. However, deprivation is a broad measure, and within any locale there will be pockets of more or less affluent people. Ultimately personal circumstances are much more relevant to individual longevity outcomes.
Recent trends within VitaSegments
Click the charts below to expand
More detail on Club Vita’s VitaSegments can be found in the report ‘Longevity Trends: One size fits all’.
Bringing in affluence - something specific to an individual – Club Vita’s data shows a different picture. The comfortable men – broadly those with a DB pension in excess of £7,500 pa - have seen remarkably stable levels of improvement in longevity over the last 15 years. They continue to have improvements of around 2% p.a.
So what is driving the national trends (and the resilience of the more affluent)?
From speaking to a wide range of experts from many disciplines, Club Vita have identified around half a dozen possible explanatory factors. Frontrunners include:
- End of an era: Recent improvements have been dominated by huge declines in cardio-vascular mortality. Have the benefits of smoking cessation, cholesterol monitoring, statins and stents largely run their course? If so, we may be in the transition period before the next wave of improvements. This could also be consistent with the resilience of more affluent socio-economic groups, since they have been earlier adopters of cancer screening programmes. They may also be the first ‘cardio-vascular healthy’ cohort to reach the ages where they are seeing benefits of reductions in vascular dementia.
- Cash-strapped Britain: An ageing population has increased demand per capita for social and geriatric care services. Concurrently, supply has been squeezed as austerity has limited both health and local authority care budgets. Key services to the health of our oldest – such as district nursing – have felt this most acutely. More affluent individuals are better placed to arrange for alternative privately funded services, enabling greater resilience.
- Winter induced frailty: Since 2011 we have seen multiple harsh winters and flu seasons. Winter deaths have run at highs, but excess mortality has continued year round. This should be no surprise though. Both flu and harsh winters (falls, respiratory conditions etc…) lead to periods of frailty amongst older people. In many cases this can lead to hospitalisation and/or sarcopenia and muscle dystrophy (muscle wasting). This frailty can be a trigger, which tips individuals into a cycle of declining frailty, ultimately leading many months later to a premature death. But the trigger event of the winter/flu is unlikely to appear on the death certificate (and certainly not in the primary entries which determine the headline cause of death statistics). This is likely to have always been a feature of winter mortality, but this decade may have been different in that (i) we have had several of these events in quick succession which are liable to have blurred into an apparent continuum of heavy mortality, and (ii) the effects will have been amplified by the supply/demand pressures within the health and social care system.
The reality is likely to be a complex combination of the above (and other) factors.
So, at the national level, are we seeing a “Blip or trend”?
Very short term the ‘Beast from the East’ and the ‘Flu from the Oz’ have made 2018 a heavy mortality year. Frailty and continued squeezes on health and social care could easily create a hangover into 2019’s mortality rates. Therefore, it is likely that the next couple of versions of the CMI model will continue to show lower initial rates of improvement, and there will be continued pressure on insurers to release reserves.
However, this could change quickly. The real question, therefore, is whether the factors driving recent years are likely to continue into the medium term. Material injections of money into health and social care in response to public pressure and/or a few benign winters / flu seasons could lead to a rapid return to higher improvements and the need to find more reserves.
Even if it is hard to see this happening quickly, socio-economic differences in improvements continue to be important. Whilst the more affluent socio-economic groups who dominate liabilities remain resilient to the national slowdown, insurers may be (rightly) reticent to follow national trends.
Either way, sailing a course through this potential volatility is likely to involve careful scenario analysis to ensure senior stakeholders are comfortable with the path taken.