EU Life Expectancy Link Poses Problems

17 February 2012 (PLANSPONSOREurope.com) - Whichever method of calculating life expectancy is used, linking Pensionable Ages to Life Expectancy presents problems, an expert at J.P. Morgan Asset Management has told PLANSPONSOR Europe. 

In its White Paper on adequate, safe and sustainable pensions, the European Commission said linking the pensionable age to life expectancy could stabilise the balance between working years and years in retirement.  It added this is of key importance for future sustainability with simulations in the Commission's 2009 Sustainability Report suggesting that increasing the retirement age in line with future gains in life expectancy could result in budgetary savings representing more than half of the projected increase in pension expenditure over the next 50 year.

Paul Sweeting, European Head, Strategy, told PLANSPONSOR Europe: “It was interesting that they explicitly mentioned linking retirement ages to longevity. That is difficult to do because there are a couple of different measures of life expectancy.

“Mathematically, there are two different ways of measuring life expectancy – one is the period life expectancy where you assume that whatever the mortality rates are they don’t change and there is no improvement over time. The other one is a cohort life expectancy which looks at how someone say 65 now would be expected to live. It allows for mortality improvement.

“You can calculate what the first one is because you know how long people are living from year to year at the moment but it doesn’t necessarily tell you how long people are going to live in the future.

“The second gives you a more accurate representation of how long people are likely to live but you don’t know what it is so you have to estimate what future longevity will be. If you are going to try and link retirement ages to either of those there are issues and problems.”
 

PLANSPONSOREurope Staff
editors@plansponsoreurope.com