Friday, August 10, 2018

Dying younger - A silver lining for some

Britain’s pension providers are enjoying a £1bn bonanza from the worsening outlook for life expectancy, as they book large profits from people who are dying unexpectedly early.

Legal & General, which manages pensions for 1.1 million people, said that changes in mortality rates will allow it to release between £300m and £400m during 2018. Chief executive Nigel Wilson said: “People are not living anywhere near as long as anyone thought they would.”  L&G said: “We continue to see evidence of higher than expected mortality. In 2017, our mortality analyses resulted in a pre-tax release of £332m of prudence within our reserves. “At this stage in our review of the 2016 mortality tables, we anticipate a £300m to £400m release to be recognised in our 2018 full year results.”

UK’s biggest life insurer Aviva said the changes had allowed it to reduce longevity reserves by £290m, while Standard Life Aberdeen reported a £79m boost in February. As more insurers release reserves, the total gain is likely to far exceed £1bn.

Pension companies have sold annuities (a guaranteed income for life) to around 5 million people at retirement on the basis of assumptions about rising longevity. In turn, they hold reserves to cover these guarantees. But as gains in life expectancy have failed to materialise, those reserves are now being returned to shareholders or reinvested.  

Since 2010, Britons’ life expectancy has stopped increasing, with the change most pronounced in women.

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