Wider longevity variation uncovered

The variation in life expectancy across Australia is wider than official figures have reported and should be considered in the construction of retirement income policies and products, a new paper from the Actuaries Institute has stated.

The “Bridging the Longevity Divide Dialogue Paper” found a variation in longevity of around a decade for men and women depending on their income, home ownership, marital status and where they live.

Using linked, de-identified microdata from the Australian Bureau of Statistics’ Person Level Integrated Data Asset, the paper examined differences in life expectancy across socio-economic groups using mortality rates observed in 2016/17 and found the specific variation for men in the most and least advantaged socio-economic profiles at age 60 was 11.5 years and for women it was 9.1 years.

Paper co-author and Associate Professor at the School of Risk and Actuarial Studies at UNSW Business School Dr Fei Huang said: “We know life expectancy differs across the population, but what is striking is just how large those differences actually are.

“These findings provide an important evidence base for individuals, communities and society at large to better understand longevity differences. They are also useful for informing discussions on retirement income, superannuation and broader policy.”

Co-author and Azuria Partners actuarial consultant Philip Clark added the new evidence should be used to expand the range of retirement income strategies and products to more Australians.

“How much someone can comfortably draw down from their superannuation depends in part on how long they can expect to live. As our analysis shows, applying the same life expectancy assumptions to everyone can overlook very different retirement needs and outcomes,” Clark said.

To that point ,the paper pointed out a potential barrier to the development and use of lifetime income products was the lack of granular evidence on mortality differentials across socio-economic groups.

“In practice, this has meant that providers often rely on general population statistics or international experience, which do not accurately reflect the longevity patterns of Australian retirees,” the paper stated, noting the research behind it was more comprehensive than that carried out by the Australian Government Actuary.

“These large and persistent differences in life expectancy suggest that a uniform approach to designing, pricing, underwriting and valuing longevity products is unlikely to reflect the heterogeneity in members’ circumstances.

“Because current pricing is calibrated to the experience of a relatively small, generally advantaged pool of existing purchasers, these products may offer poorer value to less advantaged Australians currently outside that pool should they wish to purchase such a product.

“This points to the potential for risk-based approaches to designing and pricing longevity products to improve retirement outcomes for more Australians.”