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Savers may ‘take foot off the gas’ following longevity rise slowdown

Simon Hubbard, senior consultant and actuary, comments on the finding that rises in life expectancy have slowed down, and what this means for savers…

Quantum Advisory senior consultant and actuary Simon Hubbard agreed, stating that the slowing of life expectancy improvements since 2013 has knocked approximately 5 per cent off the liabilities of a typical DB pension scheme, equivalent to £75 billion across all UK schemes.

“This offers welcome relief for schemes facing liability increases of around 30 per cent as a result of falling gilt yields. Not all pension scheme trustees will have incorporated the latest evidence on life expectancy in their scheme valuations yet, perhaps taking a cautious approach to see if the trend continues or is just a blip,” he said.

If future life expectancy improvements continue at a much lower rate than previously expected, this could knock another 2-4 per cent off DB pension scheme liabilities, Hubbard added.

For DC, Hubbard stated the cost of buying an annuity will have come down by about 3-4 per cent since 2013 as a result of life expectancy changes (albeit only offsetting an increase of around 20 per cent from falling gilt yields).

If the longevity slowdown trend continues it could knock another 2-3 per cent off the cost of buying an annuity, he added.

However, Hubbard noted that both trustees and insurers will be cautious about reducing their assumptions for future life expectancy and will wait to see if the trend continues or is “just a blip”.

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