
Life Expectancy Headlines Don’t Tell The Whole Story for Retirement Planning
The Australian Bureau of Statistics (ABS) made headlines in November 2024 with its media release, “Australian life expectancy decreases for second year in a row”.
Shortly thereafter, in December 2024, the Australian Government Actuary (AGA) released the 2020–2022 Australian Life Tables (ALTs), with less sensational messaging.
While much of the discourse surrounding mortality data has been shaped by the impacts of the COVID-19 pandemic, the latest 2020–2022 ALTs nonetheless tell an encouraging story of higher life expectancies and, bar a few exceptions, lower mortality rates compared to the 2015–2017 Tables.
Of course, we would have hoped for slightly greater reductions in mortality rates. But the observed mortality, amidst a global health crisis, reaffirms Australia’s status as a country with one of the highest life expectancies globally. For those looking to delve deeper into the 2020–2022 Australian Life Tables, I highly recommend the article by Guy Thorburn, Release of Australian Life Table 2020-22.
The Actuaries Institute’s Retirement Income Working Group (RIWG), with which I have been actively involved since late 2023, warmly welcomes the release of the new Australian Life Tables (ALTs) and commends the Australian Government Actuary for their continued efforts.
However, consistent with the insights presented in the ALT publication report, the RIWG urges caution in the application of these tables. It is essential to recognise their retrospective nature and the considerable year-to-year variations detailed within the report. Furthermore, users will need to make their own assessment of the appropriateness of the mortality improvement factors that are provided with the ALT.
The pandemic has reintroduced significant volatility in death rates, as illustrated again by an article from the Actuaries Institute’s Mortality Working Group, which shows that mortality in the first half of 2024 was 2% above expected levels, with continuing COVID-related excess mortality. Hence, actuarial judgement in setting long-term mortality assumptions is more needed than ever.
Age-Standardised Death Rates and projections
Below are the observed Age-Standardised Death Rates from the ABS up to 2023 (with ABS adjustment for late reporting), with the markers showing the 2020-2022 average followed by projection in dotted lines.
Source: Author’s own graph
The observed Age-Standardised Death Rates from the ABS up to 2023 reveal that actual 2023 death rates were approximately 2% higher than expected based on rolling forward the ABS 2020–2022 average using the previous 25-year average improvement rates.
Similarly, the ALTs 2020–2022, rolled forward using these historical improvement rate, are also likely to underestimate actual 2023 and 2024 death rates.
Is the post-pandemic mortality trend a significant risk for longevity solution providers?
When I returned to Australia in 2023, I assumed post-pandemic mortality trends would be a major concern for Australian actuaries.
Armed with the latest stochastic mortality projection models, I was eager to dive into the data. After all, my experience with a major multinational annuity provider has shown me just how critical longevity trend risk is in managing mature longevity exposures. An increase of 0.1% p.a. in future mortality improvements can have an 1-1.5% impact on liabilities depending on their duration.
Surely, I thought, this would be a pressing topic in Australia too. As it turned out, my high expectations needed recalibration.
To my surprise, longevity trend risk wasn’t the foremost concern for Australia’s aspiring longevity solution providers.
Instead, other longevity risks dominated the conversation and kept them awake at night. Here are some of the risks that stood out:
1. The risk of not reaching scale on a longevity proposition
The longevity market in Australia remains nascent and retirement solution providers face a significant challenge – the risk that their proposition will fail to attract enough clients to recover initial development costs. This is no abstract concern as some insurers have faced losses after failing to reach scale on their retirement propositions.
Managing this risk is far more complex than simply calculating a 1-in-200 risk margin or transferring the risk to a global reinsurer. Without sufficient scale, even the most innovative products can leave providers grappling with sunk costs.
2. Lack of reliable data for emerging retirement solutions
A critical distinction exists between general population mortality — often reflected in media headlines — and the mortality of select groups of insured lives or individuals with significant financial assets. General population mortality accounts for a wide spectrum of health and socioeconomic circumstances, resulting in higher overall mortality rates.
By contrast, select groups often benefit from healthier lifestyles, better access to healthcare, and greater financial stability, leading to lower mortality rates. For superannuation funds and retirement planners, accurately adjusting life expectancy estimates for these groups is essential for designing sustainable retirement income strategies. Failing to account for these differences can result in underestimating money-weighted life expectancies and creating financial shortfalls.
Providers wanting to offer retirement solutions through superannuation funds face a unique challenge: assessing the impact of selection effects on base mortality rates. How much healthier are their clients compared to the general population? Establishing credible experience data takes time, the business mix keeps evolving as longevity solutions become available to a wider pool of retirees, hence making it challenging to establish robust mortality assumptions.
3. The evolution of the economic and regulatory environment
The rapidly changing economic and regulatory environment further complicates the landscape for emerging longevity solution providers. For example, the introduction of Pension Freedoms legislation in the United Kingdom dramatically shifted consumer behaviour, as individuals prioritised flexibility in accessing retirement savings over traditional lifetime annuities.
More recently, the sharp rise in discount rates has shifted perceptions of value-for-money in longevity solutions, enhancing their attractiveness. The economic and regulatory environment has a material impact on take-up.
It is fair to say that Australia’s economic and regulatory environment remains far from settled. The Australian Government is working towards addressing the longevity challenge through the Retirement Income Covenant; however, this is far from being the perfect answeradding, further complexity to longevity solution providers who need to navigate the ever-changing landscape.
So, what is the way forward?
These challenges require providers to adapt their strategies, products and best estimate assumptions continually. In this context, flexibility is key.
Successful solutions may involve incorporating time-limited longevity guarantees through product innovation and/or creative longevity transfer mechanisms.
This flexibility would enable providers to refine pricing as credible data becomes available, reduce the burden of longevity capital and foster greater generosity during the initial stages of product development.
In summary
Actuaries should be delighted to welcome the release of the 2020–2022 Australian Life Tables. These tables provide invaluable insights into life expectancy and retirement planning. However, the COVID-19 pandemic has temporarily shaken the ground beneath us, introducing significant disruptions to mortality data with material inter-year variations. So, while these tables remain crucial, the Retirement Income Working Group urges caution when using them for life expectancy calculations.
This release presents a timely opportunity to reevaluate longevity risk and review assumptions in an environment where reliable retirees’ data remain scarce and the economic and regulatory landscape continues to shift beneath our feet.
Who is the Retirement Income Working Group?
The Retirement Income Working Group of the Actuaries Institute aims to facilitate improvements to the retirement income system in order to provide retirees reliable, secure and adequate income for a dignified retirement. Its activities include industry and policy monitoring, developing policy recommendations and promoting research into retirement issues.
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