Implications to the financial services sector of the findings of the Longevity Science Panel new paper, â€˜What is ageing? Can we delay it?â€™.
20 October 2014
Joseph Lu, Director of Longevity Risk for Legal & General’s Retirement business said: “Estimating pensioners’ longevity is a huge challenge for the Government, pension funds and annuity providers, because longevity can be affected by the complex interaction of many factors such as lifestyle, genetics, healthcare as well as advancement in medical sciences. So, we welcome the insight the Longevity Science Panel’s new paper ‘What is ageing? Can we delay it?’ provides in this area to improve the understanding of ageing and the potential of anti-ageing interventions in extending lifespans.”
- The Longevity Science Panel interviewed eight eminent experts as the basis of the Report and the conclusions have wider implications for the financial sector and the general public. These include for example:
- The potential for UK life expectancy to rise, as the ageing process slows, with people doing more exercise, have improved nutrition and diet; and there is more effective use of existing drugs, such as statins.
- Although the paper suggests that there is unlikely to be a ‘magic pill’ to delay ageing in the foreseeable future, there are studies being conducted that may still have an impact and improve life expectancy. These studies include the use of resveratrol, an ingredient in red wine, or the use of rapamycin and DHEA, which although they currently have unacceptable side effects, may be adopted in the future.
- That the UK population’s life expectancy is expected to continue to rise, but probably not as fast as observed in the last few decades.
- New technology, such as regenerative medicine will also play a role in increasing lifespan but a dramatic life expectancy rise, due to anti-ageing technology, is unlikely.
Joseph Lu continued: “This topic is important to us and wider society, because of the impact anti-ageing technology might have on life expectancy. For example, recent research has shown genetic engineering can extend life expectancy in mice by 20%*. If this was possible to apply to humans, the USA's National Institutes of Health suggests that this could be equivalent to increasing the life expectancy of babies born today by 16 years - so that they live to age 95, rather than currently age 79.
The future outlook in the developed world does differ widely. One possibility is a fall in life expectancy due to emerging obesity epidemic,**another is the possibility of us all living to at least 1,000 years old, helped by anti-ageing treatments***. With such a wide range of forecasts, it is extremely difficult for people to make plans for their future retirement, without getting some expert guidance.”
The impact of a continued rise in life expectancy
The rise in life expectancy would result in a greater number of older people in the UK population. For example, according to the ONS Principal Projection, between 2015 and 2035, the number of people age 60 or above would increase from 15.1 to 21.4 million - an increase of 6.3 million (Figure 1). This would be an overall 42% increase in people aged 60 or over but with over a 480% increase in those aged over 100. (Figure 2).
- Emerging issues as a result of this improvement in life expectancy would include:
Economic contribution of the older population. After deduction of the costs of pensions, welfare and healthcare, the Women's Royal Voluntary Service estimated that the over-65s made a net contribution to the UK economy of £40 billion through tax payments, spending power, donations to charities and volunteering, in 2010. This net contribution is expected to grow to £77 billion by 2030 with the rise in the number of people over age 65. (1)
This presents an opportunity for the financial sector to design savings and insurance products and services, which aim to help the lifestyle and circumstances of the increasing number of older customers, that are living longer.
- The need for investment in UK infrastructure. There will be an increased demand for housing and facilities that are more suitable for an ageing demographic. With more demand from an older population for potentially smaller properties as they downsize and need assistance in their homes, the current housing shortage for this demographic is likely to worsen.
The public and private sectors will have more potential to work together to help solve the infrastructure problem. For example, Legal & General has already announced its support with plans to invest up to £15 billion in the UK infrastructure over the next few years - part of this funding would directly or indirectly benefit the ageing population such as investment in new care homes.
The collaboration between public and private sectors should not be just about building houses or facilities but also designing an environment that promotes elderly wellbeing.
- Healthcare needs will increase. This is particularly the case with potentially more complex chronic health problems being presented by the ageing population. But funding for the NHS has been frozen since 2011 and the projected gap in the NHS service required is estimated to be £30bn gap by 2020. More efficient and effective approaches are required and need to to be developed for the ageing population, to help reduce the gap.
- Social care needs would increase. As a consequence there will be pressure on the funding of state benefits. The cost to cover just the state pension for the growing number of people in the UK population who will then be eligible will need to increase substantially. The cost pressures might lead to:
- Increases in the state retirement age
- Reduced generosity of state pension
Longevity risk management by institutions
Pension funds and annuity providers hold funds for to ensure they are able to meet their liability to make life-long payments to their pension customers. Pension funds and annuity providers make regular risk assessments to ensure they allow for any future rise in life expectancy. However, there is a risk that with pensioners living longer than expected, the payments will need to be made are for longer period than planned – a risk commonly called longevity risk. One way to manage this risk is by observing health and longevity trends in the population and developing longevity models that forecast the future risk.
Legal & General has allowed for substantial improvement in longevity in our forecasts, for the purposes of reserving and capital requirement. This paper helps us understand how that longevity improvement may occur through improved understanding of the biology of ageing. It also clarifies that some extreme scenarios, such as living to 1,000, which is often quoted, is unlikely. These are particularly insightful for the financial management of pensioner’s longevity risks.
- The Panel’s paper has highl