Increases in life expectancy are stalling, after 100 years of continuous progress, according to new research from University College London. There has been much hand-wringing about why this might be – is it the legacy of austerity? Or the obesity crisis? Or have we simply reached the outer limits of the human lifespan? Either way, it has implications for investors.
It may be controversial, but a stalling of life expectancy rises removes an enormous financial burden on the individual and on the state It could spell higher annuity rates and lower care home costs It also means that the burden of paying for ever-longer retirements diminishes There are those who will argue that longer life expectancy is unreservedly a good thing, it is clear that many people are not enjoying these final few years. Too often they are spent in poor health, reliant on expensive nursing care with little quality of life. As such, while it may be controversial to argue it, perhaps a slowing of life expectancy rises is to be welcome.
It certainly removes an enormous financial burden. While some will find the conflation of human life and money distasteful, those extra years of life place an enormous burden on the state, on families, and on individuals themselves as they are saving for retirement. Any stalling of the relentless rise in longevity expectations eases that burden somewhat First, it may mean higher annuity rates. While insurance companies are unlikely to adjust their assumptions just yet, if the slowdown proves sustained, investors may be able to expect better options when they hit retirement. Coupled with a rising bond yields, this could make a meaningful difference to pensioners’ incomes in the next few years.
Then there are care costs. Care costs are a huge burden for many families, setting them back around £50,000 a year. They are difficult to plan for, and can rapidly reduce an inheritance to near-zero. This has been a huge political football, but any change in government policy looks unlikely in the shorter-term. Although the problem does not disappear with stalling longevity, at least it would not get meaningfully worse.
It also means that the burden of paying for ever-longer retirements diminishes. A recent report by the International Longevity Centre, found that the next generation would need to save 18% of their income to achieve an ‘adequate’ income in retirement. Only 12.4% are currently saving more than 15%. With ever-increasing longevity, this gap threatened to get worse and worse.
Healthy longevity is a great thing, but that is not what is happening and until it does, any pause in the march of increasing life expectancy may be welcome.