The main objective of this paper is to offer a detailed analysis of mortality change in the United Kingdom at the beginning the 21st century. Starting from an exploration of 20th century mortality trends, focusing in particular on the 1990s, underlying forces driving trends in longevity are discussed. These include the ‘cohort effect’ and the ‘ageing of mortality improvement’. International mortality statistics and trends are also analysed. The pace of medical advances is discussed, with specific focus on research into the ageing process and a potential treatment for cardiovascular disease. The paper also discusses the potential threat from infectious diseases.
The analysis of underlying trends suggests that life expectancy in retirement in the U.K. is likely to increase rapidly in the early part of the 21st century. Some scientists are also claiming that we will be seeing the fruits of anti-ageing research within just a few decades.
A core theme of the paper is that future projections should be grounded in as good an understanding of the past as possible. Different methods for projecting future rates of mortality are discussed, and it is noted that emphasis should be placed on the uncertainty surrounding projections.
The financial impact of using different assumptions for future mortality is explored. Significant differences in the cost of an annuity or pension arise from the use of the various projection bases.
Life assurance companies have already declared significant losses as a result of strengthening reserves on annuity portfolios. Taken together, future increases in life expectancy, increasing awareness of the risk of providing longevity insurance, changes in legislation and shortages in market capacity and capital, may well lead to worsening annuity rates.
It is difficult to assess the precise impact of future changes in life expectancy on final salary pension schemes. There is a lack of readily available information on the mortality assumptions being used in practice. It is therefore suggested that more disclosure in this area would be helpful. Employers sponsoring final salary schemes are making promises to their employees that extend up to 70 or 80 years into the future. Actuaries should be clear in spelling out to employers and trustees the nature of the risks behind the promises they are making. Future scheme design should reflect the possibility of substantial increases in life expectancy.
An over-riding implication of the anticipated increases in life expectancy is that people will remain in work for longer in the future. The age at which people retire will inevitably have to increase, and this trend will necessarily drive changes in all aspects of our society. As actuaries we have a vital role in helping to inform the wider debate.