The Younger Members Convention

2-3 December 2002, Warrington

Who wants to live forever? Impact of mortality improvements

James DaviesHewitt Bacon & Woodrow

Agenda

Headlines More detail on recent mortality experiences Implications / effects of changes Experience of self administered pension schemes Future changes Questions / discussion

Headlines

People are living longer More people survive to retirement People then tending to live longer

Most improvement for males PA90 tables have the wrong shape

Changes in mortality of male assured lives

0

50

100

150

200

250

300

350

400

17 22 27 32 37 42 47 52 57 62 67 72 77 82 87 92 97

Age

Perc

enta

ge o

f 196

7-70

1924-29

1949-52

1967-70

1991-941979-82

More detail on recent mortality experiences

CMIB – some background

Been collating data since 1955 Data collected by Amounts and by Lives Pensioners of life office pension schemes (DB & DC) Includes most of the major insurance companies Lots of data – will it reduce in the future?

Recent history of tables

a(55) – based on 1949-52 data (projected) PA(90) – 1967-70 data projected to 1990 P?A80 – 1979-82 data, two-way table P?A92 – 1991-94 data, two-way table

100A/E against PA(90) – all ages

40

60

80

100

120

1964 1968 1972 1976 1980 1984 1988 1992 1996

100

A/E

MAFAMLFL

100A/E against PA(90) – all ages

40

60

80

100

120

1964 1968 1972 1976 1980 1984 1988 1992 1996

100

A/E

MAFA

100A/E against PA(90) – MA – various age groups

40

60

80

100

120

1964 1968 1972 1976 1980 1984 1988 1992 1996

100

A/E

66-7076-8086-90All ages

100A/E against PA(90) – FA – various age groups

40

60

80

100

120

1964 1968 1972 1976 1980 1984 1988 1992 1996

100

A/E

61-6571-7581-85All ages

100A/E against 80 series – recent experience only

70

80

90

100

110

1983 1985 1987 1989 1991 1993 1995 1997

100

A/E

MAMLFAFL

100A/E against 92 series – recent experience only

80

90

100

110

1992 1993 1994 1995 1996 1997 1998

100

A/E

MAMLFAFL

Ratio of Pxx92C1992 (the base values) to PA(90)-2

0.2

0.4

0.6

0.8

1

1.2

40 50 60 70 80 90 100 110

Rat

io

Female AmountsMale Amounts

Criticisms of 92 series

Don’t know enough about “why” No allowance for “cohort” effect

Group born 1925-45 Biggest improvements in morality rates Not adjusted for => may overstate future improvements

Wider uncertainty about future morality improvements

Implications / effects of changes

The cost of living

People are living longer Scheme are paying out pensions to more members Pensions are paid for longer So pensions cost more (or you can buy less pension if DC)

Valuation strains Deficits in DB schemes Greater uncertainty for DC members?

Life expectation for male aged 60

17

19

21

23

25

27

29

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030

Exp

ecta

tion

of li

fe (y

ears

)

1968 data1980 data1992 data

Life expectation for female aged 60

17

19

21

23

25

27

29

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030

Exp

ecta

tion

of li

fe (

year

s)

1968 data1980 data1992 data

Life expectation for female (and male) aged 60

17

19

21

23

25

27

29

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030

Exp

ecta

tion

of li

fe (

year

s)

1968 data1980 data1992 data

Life expectancy - males

0

5

10

15

20

25

30

35

40

50 60 70 80 90 100

Exp

ecta

tion

of li

fe (y

ears

)

PA90PA90 -2PA90 -4PA92C2000PA92C2020

Life expectancy - females

0

5

10

15

20

25

30

35

40

50 60 70 80 90 100

Exp

ecta

tion

of li

fe (y

ears

)

PA90PA90 -2PA90 -4PA92C2000PA92C2020

Life expectancy – ratio to PA90 - males

1

1.1

1.2

1.3

1.4

1.5

50 60 70 80 90 100

Rat

io

PA90 PA90 -2PA90 -4 PA92C2000PA92C2020

Life expectancy – ratio to PA90 - females

1

1.1

1.2

1.3

1.4

1.5

50 60 70 80 90 100

Rat

io

PA90PA90 -2PA90 -4PA92C2000PA92C2020

Examples of changes in life expectancy

Male aged 65 PMA80 says survive for just over 15 years PMA92 says survive for just under 20 years

Male aged 35 1980 data says survive until 80y 1m 1999 data says survive until 85y 1m

Effect on pension schemes

Value of liabilities increases Past service deficits Higher cost of future service benefits Impact depends on where you start from and what

table you want to use for future

What tables to use …

Should actuaries use two-way tables? Scheme or industry experience Is life office data totally relevant ? Calendar year vs year of birth Imprudent to ignore future improvements? Allowance for future change is an imprecise science

Eg effect of future medical advances

Ratio of joint life annuities to PA90M-4 (3% interest)

0.8

0.9

1

1.1

1.2

50 55 60 65 70 75 80 85 90 95 100

Rat

io

PA90M-2 PMA92C2000PMA92C2020 PMA92B1945

Ratio of joint life annuities to PA90F-4 (3% interest)

0.8

0.9

1

1.1

1.2

50 55 60 65 70 75 80 85 90 95 100

Rat

io

PA90F-2 PFA92C2000PFA92C2020 PFA92B1945

Actives – past service and future service

Example of impact on actives for a scheme Effect not necessarily obvious => care needed when

choosing assumptions Sensitive to a number of factors

PA65PS FS (AA)

92C2000 -0.2% -0.8%

92C2020 +6.0% +5.9%

92B1945 +8.9% +8.8%

Actives – past service and future service

Example of impact on actives for a scheme Effect not necessarily obvious => care needed when

choosing assumptions Sensitive to a number of factors

PA65 PA60PS FS (AA) PS FS (AA)

92C2000 -0.2% -0.8% +0.8% +0.5%

92C2020 +6.0% +5.9% +6.5% +6.5%

92B1945 +8.9% +8.8% +10.1% +8.5%

Mortality is not the whole story …

Falling yields have had a big impact … £100 pa pension (male, LPI, 50% spouse’s pension)

Approx cost in 1985 was £1,000 (’80’ tables) Cost risen to £1,500 by 2001 due to yields falling Rises further to £1,800 when use ’90’ tables

Pension scheme liabilities have risen even more than just the amount due to mortality

Experience of self administered pension schemes

CMIR number 20

Request from Pensions Board Pilot investigation of mortality of pensioner of self

administered schemes Comparison to standard tables

Data

From 7 offices, 13 schemes (one unusable) Various formats – required some work by CMIB No consistently usable information on industry / type Included ill health retirements? “… the data could have been better”

PROFESSION

Findings

Males – experience between 80 and 92 series Shape different to PA90

A/E < 100 at younger ages A/E > 100 at higher ages

Females – experience heavier than 80 and 92 series Amounts vs Lives effect similar to main investigation Results at younger ages suggest data included IH

… but removing under age 56 has little effect on A/Es Broadly similar results for all 12 schemes used

100A/E for males, amounts

Age group PA(90) –2 PMA80C1997 PMA92C1997

46-50 287 350 896

51-55 73 98 224

56-60 69 109 201

61-65 60 88 137

66-70 73 91 124

71-75 86 94 117

76-80 94 93 109

81-85 102 95 106

86-90 105 95 103

91-95 105 97 103

96-100 106 100 107

101-105 109 104 116

56-105 88 94 113All ages 88 94 114

100A/E for males, amounts – by age group

40

60

80

100

120

140

46-50 56-60 66-70 76-80 86-90 96-100

100A

/E

PA(90) –2PMA80C1997PMA92C1997

100A/E for males, amounts – by age group and total

40

60

80

100

120

140

46-50 56-60 66-70 76-80 86-90 96-100

100A

/E

PA(90) –2PMA80C1997PMA92C1997

Broad conclusions

Data could be better Experience not same as life offices Shape similar to that seen in main investigation Males improving more than females

Future changes

Where will it end?

With the knowledge that is accumulating now… we could add 30 years to human life in the next

decade Dr William Regelson, Professor of Medicine, Virginia

Life expectation – cost of 10% improvement (males)

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

50 55 60 65 70 75 80 85 90

Incr

ease

in a

nnui

ty (

with

spo

use'

s pe

nsio

n) PA90M-2PMA80C2000PMA92C2000

Life expectation – cost of 10% improvement (females)

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

50 55 60 65 70 75 80 85 90

Incr

ease

in a

nnui

ty (

with

spo

use'

s pe

nsio

n) PA90F-2PFA80C2000PFA92C2000

Consequences

DB schemes unaffordable in current form Are there solutions?

Lower benefits Fewer early retirements on generous terms Increase NPA Increase contributions

Companies more nervous due to increased risk

Questions / Discussion