Pensions Regulator challenges assumptions on longevity

by Gill Montia

Story link: Pensions Regulator challenges assumptions on longevity

The chairman of the Pensions Regulator, David Norgrove, has made it clear that he is expecting pension fund Trustees to review their liabilities in the light of longer life expectancy.

The regulator has for some time voiced concerns that many final-salary pension schemes are underestimating the longevity of their members and from now on they should assume that 65 year old men will live, on average, until they are 89.

Latest figures from the Office for National Statistics (ONS) suggest that a man who is 65 this year will live 21 more years to aged 86, while a 65 year old woman will live for a further 23 years, until they are 88.

Twenty years ago, a man retiring at 65 could only expect 15 years in retirement; women did slightly better at 19 years.

The regulator also wants schemes to assume that recent improvements in life expectancy will continue because if projections by the ONS are accurate, in 2040, men aged 65 will have an additional 29 years to live.

Mr Norgorve comments: “Life expectancy is going up faster than anyone expects so there’s been a constant process of the assumptions catching up with reality, and we want to give that a boost.”

The cost of funding a final-salary pension scheme increases by between 3% and 4% for every extra year of life added.