The IMF’s analysis* of the financial impact of longevity risk globally, estimates that the UK’s public debts would have to rise by about £750bn in today’s prices to pay for the nation’s higher pension costs. Part of the increased cost would come from failed private sector schemes, which it claims are unprepared for a small jump in life expectancy. It adds that this may also cripple life insurance companies.
In response Steve Groves, chief executive officer at retirement specialists Partnership, has said:
“The risks associated with longevity are recognized by the UK life industry.
“There are many ways to manage longevity risk. For example, all annuity providers make allowances for mortality improvements in how they reserve for future annuity payments.
“In addition, all insurers are required by the FSA to carry out regular risk assessments based on 1 in 200 year risks – for example, that a cure is found for cancer – which again helps us to assess significant, but extreme risks to our business.
“Specialist companies like Partnership, also have a range of sophisticated ways to mitigate longevity risk based on our ability to price longevity risk individually based on health and lifestyle conditions. As we have a unique proprietary data set which helps us to estimate longevity on the basis of those conditions and, as an expert in the field of medical underwriting, we are less exposed to the risk of a general increase in longevity compared to general life insurers.
“It is also worth noting that the majority of longevity improvements witnessed in the West have resulted from improvements in preventative medicine as well as changes to lifestyles, in particular the reduction in the level of smoking rather than cures. For Partnership, our main exposure is to individuals who have already suffered some medical condition, and therefore make up a different group of people to the general population that will benefit from longevity improvements.”
Groves added: “There is a fundamental difference here between insurers, who have to hold large amounts of capital as “rainy day” money against this risk, and pension funds which do not. I believe the time will come when members of pension funds will face a choice between guaranteed levels of benefits with higher associated contributions and less certain benefits but with lower contributions.”
- Ends -
Notes to Editor:
*IMF, Global Financial Stability Report’, April 2012, the Financial Impact of Longevity Risk
Nigel Barlow, director of product development marketing, Partnership
0845 108 7240 email@example.com
Jim Boyd, director of corporate affairs, Partnership
0797 345 8675 / 0845 108 7240 firstname.lastname@example.org
Vaughan Andrewartha, director, Votive Communications
0797 005 6920 / 020 7353 9277 Vaughan@votive.co.uk