1.  The Younger Members Convention 2-3 December 2002, Warrington Who wants to live forever? Impact of mortality improvements James Davies Hewitt Bacon & Woodrow

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

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

4. Changes in mortality of male assured lives

5. More detail on recent mortality experiences

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

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

8. 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. Criticisms of 92 series n Don’t know enough about “why” n No allowance for “cohort” effect nGroup born 1925-45 nBiggest improvements in morality rates nNot adjusted for => may overstate future improvements n Wider uncertainty about future morality improvements

16. Implications / effects of changes

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

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. Examples of changes in life expectancy n Male aged 65 nPMA80 says survive for just over 15 years nPMA92 says survive for just under 20 years n Male aged 35 n1980 data says survive until 80y 1m n1999 data says survive until 85y 1m

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

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

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

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

30. Actives – past service and future service n Example of impact on actives for a scheme n Effect not necessarily obvious => care needed when choosing assumptions n Sensitive to a number of factors PA65 PSFS (AA) 92C2000-0.2%-0.8% 92C2020+6.0%+5.9% 92B1945+8.9%+8.8%

31. Actives – past service and future service n Example of impact on actives for a scheme n Effect not necessarily obvious => care needed when choosing assumptions n Sensitive to a number of factors PA65PA60 PSFS (AA)PSFS (AA) 92C2000-0.2%-0.8%+0.8%+0.5% 92C2020+6.0%+5.9%+6.5% 92B1945+8.9%+8.8%+10.1%+8.5%

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

33. Experience of self administered pension schemes

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

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

36. PROFESSION

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

38. 100A/E for males, amounts Age groupPA(90) –2PMA80C1997PMA92C1997 46-50287350896 51-557398224 56-6069109201 61-656088137 66-707391124 71-758694117 76-809493109 81-8510295106 86-9010595103 91-9510597103 96-100106100107 101-105109104116 56-1058894113 All ages8894114

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

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

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

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. Consequences n DB schemes unaffordable in current form n Are there solutions? nLower benefits nFewer early retirements on generous terms nIncrease NPA nIncrease contributions n Companies more nervous due to increased risk

47. Questions / Discussion