Although actuarial or statistical data reflecting the perceived drop in mortality rates was not readily available, “financial planners need to factor in some improvement in life expectancy,” he said. This was particularly important since the retirees living longer were generally middle and higher-income earners that could more easily afford advanced health treatments, and were more likely to purchase financial advice, than low-income earners. “Life expectancy is usually less for people in lower socio-economic groups,” Knox said.
Knox added that manufacturers should provide more choice to retirees beyond account-based pensions which, while effective, are “very individualistic”. A product that pooled a designated sum from retiree accounts, such as 15 per cent, into a reserve fund to provide additional income for members living beyond a designated age, such as 90, was appropriate. “If we get to 90, we draw on that pool. If we don’t get there it’s like we’ve paid an insurance premium but have not made a claim. “If we are going to treat longevity risk in a reasonable way there will be some pooling. If we operate on individual islands we won’t solve the problem.”
Robertson said the core of a future pension could be a pension account, but with a long-term equity exposure, a seamless tax structure across super and other investments, capital protection, more flexible access through the internet and ATMs and a pooled ‘longevity fund’ enabling “those who live longer to be funded by those that don’t”.
But Knox said there would unlikely be any single product or investment that could comprehensively manage longevity risk. “We need to separate the risks and diversify solutions, and not rely on a single product or investment.” This could involve parcelling a retirement income and distributing it across several products or investments. “There is no silver bullet,” the actuary concluded.