Pensions are finally capturing the public imagination. But, unfortunately, for all the wrong reasons.
This week, up to 1m public sector workers prepared to strike over government plans to change their pension schemes. With an election looming, the government eventually climbed down and agreed to new talks on the key issues, which include plans to raise the age of retirement for most public sector workers from 60 to 65.
The workers’ victory is almost certain to be short-lived. Once the election is over, we are likely to hear a lot more about “longevity risk” – a new buzzword that measures the financial costs of longer lives.
The startling burden that will fall on all of us is only now starting to be fully understood by experts. With overall life expectancy at birth rising at an average of two and a half years each decade, assumptions about the total costs of retirement are being shattered.
In crude terms, men now have to fund a retirement at 65 that’s likely to last 19 years on average – up from 13 years in the early 1970s. And most of them also have to fund retirement income for wives who will probably outlive them. A 65-year-old woman in 2005 can expect to live another 22 years.
Adrian Gallop at the Government Actuary’s Department (Gad), says the rise in life expectancy is likely to continue well into this century, although looking a long way ahead is an inexact art. “We produce mass population projections 40 years and 70 years ahead – some bodies such as National Insurance need them – but effectively you can’t predict this far ahead, it is just a projection. There may be a miracle cure for cancer, cures for genetic diseases – or possibly the rise in obesity among young people will affect mortality,” says Gallop.
A recent paper on longevity, co-written by Gallop, points out that very elderly people are vulnerable to a range of medical conditions – so even if some causes of death among the very old are eradicated, other life-threatening diseases are just as likely to take their place.
