INVESTMENT BRIEF Just a blip?
We might need to revise our expectations of ever increasing longevity in the light of recent statistics, warns Anthony Hilton, Evening Standard
Statistics released just before Christmas by the Centre for Disease Control in the United States showed that in 2015 the average American could expect to reach the age of 78.8 years. Nothing particularly exceptional in this, you might think, though the number is notably low, given how much the Americans spend on healthcare as a proportion of gross domestic product, and is well adrift of the 83.7 years scored by Japan, the nation which tops the World Health Organisation’s longevity tables.
But as a report in the Financial Times noted, if you look at the same data set for the previous year, something interesting emerges. The relevant life expectancy figure for 2014 was 78.9 years, a slightly higher figure. Over the 12 months, the estimate of average life expectancy came down by a little more than a month. This is not a great deal in the great scheme of things, but hugely important for all that, because you have to go back more than 20 years to find the last time a decline happened. That was in 1993, when HIV/Aids and a severe influenza outbreak combined to cause a blip in the figures.
No obvious explanation
The change relates to both men and women. Looking at the data by gender, though, suggests that men are more affected than women. The average expectancy for females has reduced by just over a month to 81.2 years, whereas for men the relevant fall is almost twice as large from 76.5 to 76.3.
What is interesting this time is that there is no obvious explanation. The top ten causes of death, accounting for almost three quarters of the total, are the same this year as last, and in the same sequence: heart disease, cancer, respiratory disorders, accidents, strokes, Alzheimer’s, diabetes, influenza, pneumonia, kidney disease and suicide. Only one of these, cancer, showed a decrease, while most of the others rose, Alzheimer’s by a whopping 15%.
Now it could be that this is just one of those statistical quirks that happen from time to time, and the 2016 figures when they emerge will show the return to the normal lengthening trend in life expectancy, at which point normal service will be resumed. Meanwhile, it is hard to resist the temptation to speculate about whether our expectations of ever greater longevity are going to have to be revised.
It could be that this is just one of those statistical quirks that happen from time to time, and the 2016 figures will show the return to the normal lengthening trend in life expectancy.
Certainly, there are medical professionals who will not be surprised. For more than a decade, doctors have been warning that the obesity epidemic was going to have an impact. This is particularly obvious in America, where it affects around a third of adults, but it is also spreading to this country and the more affluent nations of Western Europe, albeit not yet on the same scale.
Being overweight does not kill people on its own, but it is a major contributory factor in many of the things listed earlier which do – such as heart disease, type 2 diabetes and strokes. There are even signs in some research of a link to Alzheimer’s.
Clearly, this potentially has huge implications for pension schemes. One of the major challenges pension managers face is people living much longer than expected and therefore drawing their pensions for much longer than expected. It is a deeply embedded trend. From 1840 through to 2007, almost without interruption in developed countries, life expectancy has risen by about three months every year. However, if we can no longer take that assumption as a given, it profoundly changes the economics of scheme funding.
There is not much anyone can do at the moment other than wait patiently for more data, in the hope that things will become clearer. Meanwhile, it might be worth delaying that final decision on hedging longevity risk, or at the very least asking the counterparty whether their price quotation has taken any account of this latest information from the US.
Anthony Hilton has won many industry awards including European Business Writer of the Year, Wincott Business Journalist of the Year and the London Press Club's Business Writer of the Year. He joined Fleet Street in 1968 as a trainee on The Guardian. He was City Editor of The Times from 1981 to 1983 and City Editor of the Evening Standard from 1984 to 1989. He was then Managing Director of the Evening Standard for six years, before returning to the City Office as Financial Editor and economics leader writer for the paper. He has worked in television and radio, has written books on understanding finance and the City, and is a frequent conference and after dinner speaker and moderator on City and media matters. His interest in pensions was stimulated by a 19 year spell as a trustee of the various schemes in the Daily Mail Group. He currently serves a a member of the investment committee of the Harmsworth pension schemes.