Mercer has warned companies and trustees not to draw conclusions that mortality rates issued recently by the Office of National Statistic (ONS) will materially impact the rate at which life expectancy is increasing. The ONS figures purport to show that mortality rates - the ratio of the number of deaths in an age group compared to the population in that age group - have been rising more slowly than expected.
Glyn Bradley at Mercer commented, "The 2011 census data suggests that mortality rates for the UK population, mostly at older ages, have been slightly lower than earlier estimates, which were based on a roll forward of the 2001 census. However, at most ages the rates of improvement seen are still very similar to the original estimates, with the most material discrepancies only occurring at ages 90 and beyond. Due to the relatively small population at these ages, these revised findings therefore have very little impact on life expectancy at younger ages. For those now aged 65, life expectancies that would previously have been estimated to be 20 years or more might be reduced by a few several weeks, so it's important to put these figures in perspective in a country where life expectancy has recently been rising by several weeks or even several months each year."
Andrew Ward, head of longevity swap consulting at Mercer, added, “These findings do not alter the fact that life expectancy seems to be continuing to increase rapidly. Furthermore, the vast majority of pension schemes assume long-term trends will be closer to those observed over the long term past, which are significantly less than those so far observed in the 21st century. If these recent rates of improvement continue over the long term, then the cost of providing pensions using current scheme designs would increase dramatically."
Ward concluded, "No one can say for sure how mortality rates will develop in the future and there is evidence which could arguably be to support a number of different views. If anything, this recent data just serves to underline the inherent difficulty in predicting life expectancy. Therefore, schemes and their sponsors should consider their appetite to continue to run this longevity risk and investigate the options available to mitigate it."
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