The slowdown in increasing life expectancy (LE) is likely to be a trend, rather than a blip. This was confirmed by the Continuous Mortality Investigation, which this month released figures showing life expectancies for both men and women at age 65 were around six months lower in 2018 than in 2017.
However, this should not lead people to think they will get their state pension any earlier, or that they need to save less to fund a sustainable lifestyle in retirement.
Although understandable, this mindset ignores two important issues:
- This is not a decrease in LE, it is a decrease in the rate of improvement. LE is still rising, just at a slower rate.
- Although LE has been continually rising since the introduction of the state pension, there were no increases to the state pension age (SPA) until 1995. And even then, it started as a result of EU equality rules rather than mortality improvements.
Increases in LE were at their greatest during the first half of the 20th century, due to improvement in healthcare and the consequent reduction in childhood mortality. In the latter part of the century, improvements in mortality continued, albeit at a slightly lower rate, possibly due to improvements at the other end of the life cycle.
What we are seeing now is a further slowdown that seems set to continue, but LE is still going in an upward direction.
In this context, one of the most important factors of retirement planning is for financial advisers to help their clients recognise how much money they will need in retirement, and for how long.
The fact advised individuals tend to save more and for longer is due to having a plan based on providing a sustainable income for a retirement that could easily last 30 years.
Looking at the history of the state pension, the current and proposed changes to the SPA are long overdue. With a 50-year period when LE changes were simply ignored (see table above), we are only now catching up. That being the case, it is exceedingly unlikely the government would see fit to cancel any of its proposals.
The fact we are living longer is an extremely good thing, however it has a knock-on effect on our lifestyles. Careful planning is required to avoid poverty if we are around longer than we expected to be.
Fiona Tait is technical director at Intelligent Pensions