The Younger Members Convention 2-3 December 2002, Warrington

1. abcd The Younger Members Convention2-3 December 2002, Warrington Who wants to live forever? Impact of mortality improvements James Davies Hewitt Bacon & Woodrow

2. Headlines More detail on recent mortality experiences Implications / effects of changes Experience of self administered pension schemes Future changes Questions / discussion Agenda

3. People are living longer More people survive to retirement People then tending to live longer Most improvement for males PA90 tables have the wrong shape Headlines

4. Changes in mortality of male assured lives

5. More detail on recent mortality experiences

6. Been collating data since 1955 Data collected by Amounts and by Lives Pensioners of life office pension schemes (DB & DC) Includes most of the major insurance companies Lots of data – will it reduce in the future? CMIB – some background

7. a(55) – based on 1949-52 data (projected) PA(90) – 1967-70 data projected to 1990 P?A80 – 1979-82 data, two-way table P?A92 – 1991-94 data, two-way table Recent history of tables

8. 100A/E against PA(90) – all ages

9. 100A/E against PA(90) – all ages

10. 100A/E against PA(90) – MA – various age groups

11. 100A/E against PA(90) – FA – various age groups

12. 100A/E against 80 series – recent experience only

13. 100A/E against 92 series – recent experience only

14. Ratio of Pxx92C1992 (the base values) to PA(90)-2

15. Don’t know enough about “why” No allowance for “cohort” effect Group born 1925-45 Biggest improvements in morality rates Not adjusted for => may overstate future improvements Wider uncertainty about future morality improvements Criticisms of 92 series

16. Implications / effects of changes

17. People are living longer Scheme are paying out pensions to more members Pensions are paid for longer So pensions cost more (or you can buy less pension if DC) Valuation strains Deficits in DB schemes Greater uncertainty for DC members? The cost of living

18. Life expectation for male aged 60

19. Life expectation for female aged 60

20. Life expectation for female (and male) aged 60

21. Life expectancy - males

22. Life expectancy - females

23. Life expectancy – ratio to PA90 - males

24. Life expectancy – ratio to PA90 - females

25. Male aged 65 PMA80 says survive for just over 15 years PMA92 says survive for just under 20 years Male aged 35 1980 data says survive until 80y 1m 1999 data says survive until 85y 1m Examples of changes in life expectancy

26. Value of liabilities increases Past service deficits Higher cost of future service benefits Impact depends on where you start from and what table you want to use for future Effect on pension schemes

27. Should actuaries use two-way tables? Scheme or industry experience Is life office data totally relevant ? Calendar year vs year of birth Imprudent to ignore future improvements? Allowance for future change is an imprecise science Eg effect of future medical advances What tables to use …

28. Ratio of joint life annuities to PA90M-4 (3% interest)

29. Ratio of joint life annuities to PA90F-4 (3% interest)

30. Example of impact on actives for a scheme Effect not necessarily obvious => care needed when choosing assumptions Sensitive to a number of factors Actives – past service and future service

31. Example of impact on actives for a scheme Effect not necessarily obvious => care needed when choosing assumptions Sensitive to a number of factors Actives – past service and future service

32. Falling yields have had a big impact … £100 pa pension (male, LPI, 50% spouse’s pension) Approx cost in 1985 was £1,000 (’80’ tables) Cost risen to £1,500 by 2001 due to yields falling Rises further to £1,800 when use ’90’ tables Pension scheme liabilities have risen even more than just the amount due to mortality Mortality is not the whole story …

33. Experience of self administered pension schemes

34. Request from Pensions Board Pilot investigation of mortality of pensioner of self administered schemes Comparison to standard tables CMIR number 20

35. From 7 offices, 13 schemes (one unusable) Various formats – required some work by CMIB No consistently usable information on industry / type Included ill health retirements? “… the data could have been better” Data

36. PROFESSION

37. Males – experience between 80 and 92 series Shape different to PA90 A/E < 100 at younger ages A/E > 100 at higher ages Females – experience heavier than 80 and 92 series Amounts vs Lives effect similar to main investigation Results at younger ages suggest data included IH … but removing under age 56 has little effect on A/Es Broadly similar results for all 12 schemes used Findings

38. 100A/E for males, amounts

39. 100A/E for males, amounts – by age group

40. 100A/E for males, amounts – by age group and total

41. Data could be better Experience not same as life offices Shape similar to that seen in main investigation Males improving more than females Broad conclusions

42. Future changes

43. Where will it end? With the knowledge that is accumulating now… we could add 30 years to human life in the next decade Dr William Regelson, Professor of Medicine, Virginia

44. Life expectation – cost of 10% improvement (males)

45. Life expectation – cost of 10% improvement (females)

46. DB schemes unaffordable in current form Are there solutions? Lower benefits Fewer early retirements on generous terms Increase NPA Increase contributions Companies more nervous due to increased risk Consequences

47. Questions / Discussion