Life expectancy for Brits has doubled in the last 150 years. Thanks to medical advances and nutritional awareness, most of us can expect to see our eightieth birthday. It’s not unusual to know someone in their nineties, and centogenarians are rare but not unheard of – there were 9,600 in 2008.
But increasing life expectancy is a double edged sword. Whilst we can fit more in to a longer life, we also have to find a way to fund it. Retirement ages are rising, with people trying to stay at work for as long as possible to pay their way. Someone is their sixties in 2010 still has a lot to give the workplace. Yet very few people will want to be working in their seventies and eighties.
Whilst life expectancy is projected to plateau between 2020 and 2040, the truth is that scientists have no idea how much longer we will live. Who knows what pharmaceutical breakthroughs are around the corner? This leaves economists with the unenviable task of working out how to fund the next generations’ retirements.
The government’s response to rising life expectancy has been to raise the state retirement age gradually. By 2024 it will be 66 to men and women, by 67 years old by 2034, and by 2044 it will be 68. This is one of the ways the state plans to address the issues raised by providing for an elderly population.
The private sector has had to be more innovative. Most defined benefits schemes are closed to new members. There are already widespread deficits in such schemes due to poor performance of the markets. But the added factor of members’ increasing longevity has compounded the extent of these deficits.
This has led leading employers to seek insurance to address this risk. BMW recently did a deal with Abbey Life to cover this problem. The car maker has a pension scheme for some 60,000 employees and (both current and retired) which has liabilities worth around £3billion. By specifically insuring the risk of its workers being expected to live longer, BMW say that this deal enhances the security of its employees’ pensions, and is the fruit of some considerable research and investment.
This is the largest longevity insurance deal that Abbey Life has completed, but their spokespeople expect more similar transactions to come to light in 2010 as pension trustees get to grips with this problem.
