Rising life expectancy is having serious implications for retirement planning as it puts downward pressure on annuity rates, warned principal for Shropshire Independent Financial Services Rosemary Heaversedge.
“Fifteen years ago you would expect annuity rates to increase as people got older but over the past decade, annuity rates have been falling”, said Ms Heaversedge.
“This is because underwriters and life offices look at the statistics and realise they can’t afford to be too generous because people are living for so much longer”.
Greater life expectancy will have serious financial implications, she pointed out. “Rates could become so unfavourable that it won’t be possible to retire until a significantly later age. Retiring at 60 is already becoming difficult and that is where we will see the major changes”.
Since the median age of people living longer has increased, underwriters are also making necessary adjustments, she said. “This is because at 60, there used to be a big pool of people and underwriters knew that if they offered a certain rate some would die quite quickly, while some might live for a long time, so they offered a median market rate. Now more people are living much longer”, she said.
Ms Heaversedge’s comments follow a recent report published by the Office for National Statistics (ONS), which found the life expectancy at birth has reached its highest level in recorded history and is expected to rise further.
If mortality rates remain unchanged at 2007 to 2009 levels, a new-born baby girl is expected to live till 82 years while a baby boy’s life expectancy will be 77.7 years.
However, since mortality rates have dropped in 2009, a baby boy born in 2009 is expected to live till 88.7 years of age while a girl will live till her 92th birthday.