There are calls for the DC drawdown industry to make better use of more comprehensive longevity figures now available, which show marked differences in life expectancy based on postcode.
Speaking at the Corporate Adviser Master Trust and GPP conference Club Vita’s global head of pension strategy Mark Sharkey explained that the majority of men and women significantly underestimated life expectancy, while failing to save sufficiently for retirement.
Relying on the ‘flaw of averages’ can have serious consequences for those taking an income from their pension funds in drawdown he said, with many running the risk of exhausting their funds before they die.
Sharkey demonstrated the differences in life expectancy between a central Edinburgh postcode and north west London postcode: the first being an area he lived in as a student and the second his current address. As he pointed out, life expectancy (for a 65 year old man) was 86.4 years in the former but 90.1 years in the latter.
This results in a “6 per cent longevity haircut” he said, in terms of what a London-based retiree would be able to take from his pension plan each year in terms of income. Differences would be even more marked between other parts of the country he said.
Sharkey said these differences mean “there is a risk of people over- or under-spending in retirement”. Better data, which looks at regional life expectancy rates, rather than national ones, could help empower individuals to make better decisions around retirement he said. This is increasingly important as individuals increasingly make their own decisions around retirement income.
In a poll of the audience a total of 42 per cent of delegates agreed this level of information would be helpful for individuals, with a further 30 per cent agreed it would be helpful, but thought might be difficult to implement.
Club Vita compile data on longevity for insurers, re-insurers and pensions plans across the UK, US and Canada. Sharkey says this enormous data set has enabled it to better understand emerging trends in longevity particularly in the wake of the Covid pandemic.
He pointed out that differences in life expectancy happen not only at a regional level but also at a street/ postcode level. While this information would not accurately predict exactly how long any one individual would live it might help more accurate information and potential lifespans he said.
“When it comes to life expectancy one size does not fit all. There are real financial consequences for DC members who get this wrong and rely to much on national average figures,” he added
Sharkey also pointed out that a fall in average life expectancy during the pandemic, following years of slower growth may also be creating false expectations, particularly among those who have yet to retire.
