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mortality in the third millennium. Richard Willets. mortality in the third millennium. In order to predict the future you need to understand the forces that have driven trends in past. Idea 1. mortality in the third millennium.

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Presentation Transcript
mortality in the third millennium1
mortalityin the third millennium
  • In order to predict the future you need to understand the forces that have driven trends in past

Idea 1

mortality in the third millennium2
mortalityin the third millennium
  • Trends are best understood by looking at patterns in population experience

Idea 2

key conclusion
key conclusion
  • Mortality rates for elderly people are set to improve at a faster rate than ever before.
  • Life expectancy at retirement will surge upwards.
  • The new CMI basis will probably underestimate the extent of the improvement.
mortality in the third millennium3
mortalityin the third millennium
  • An overview of 20th century trends
  • Experience in the 1990s
  • Evidence backing the key conclusion
  • Mortality projection
  • Implications
mortality in the third millennium4
mortalityin the third millennium

an overview of the 20th century

an overview of the 20 th century
an overview of the 20th century

Between 1901 and 1991...

  • life expectancy for males increased from 45 to 73 years
  • the number of women reaching age 65 increased from 41% to 87%
  • mortality rates for young children have reduced by as much as 97%
an overview of the 20 th century1
an overview of the 20th century

Reduction in mortality rate between 1901 & 1991 - E&W pop

data source: ONS

mortality in the third millennium5
mortalityin the third millennium

experience in the 1990s

experience in the 1990s
experience in the 1990s

Annual rates of mortality improvement (E&W pop)

data source: ONS

experience in the 1990s1
experience in the 1990s

Annual rates of mortality improvement (E&W pop)

data source: ONS

experience in the 1990s2
experience in the 1990s

Components of the improvements - males (E&W pop)

data source: ONS

slide13

annualised rates of heart disease mortality improvement

England & Wales population - ages 65 to 69

data source: ONS

the cohort effect
the cohort effect

Possible explanations...

  • Second World War
  • diet
  • patterns of smoking behaviour
  • Welfare State

but...

  • the effect can be seen independently in all the major health-related causes of death
a japanese cohort effect
a Japanese cohort effect

data source: JLTs

the ageing of mortality improvement3
the ageing of mortality improvement

Average annual rates of mortality improvement - females aged 70 to 99 - Denmark, Finland, Norway & Sweden

source: Kannisto

the ageing of mortality improvement4
the ageing of mortality improvement
  • Scientific breakthroughs are occurring at a faster and faster pace
  • Human knowledge is doubling every 10 years
  • Computer power is doubling every 18 months
  • The Human Genome Project produced a first draft in 2000
international experience
international experience

Life expectancy at age 65 (years)

data source: WHO

an alternative cohort basis
an alternative cohort basis
  • Rates are projected by year of birth
  • “Current” rates of improvement are based on 1992-97 rates for the E&W population
  • Improvement rates gradually move towards “long-term” values
  • “Long-term” rates are based on average rates for the period 1961 to 1997
  • A loading of 25% is applied to convert to improvements suitable for annuitants
comparison
comparison

improvement rates in year 2000

comparison1
comparison

improvement rates in year 2000

improvement rates in year 2020

comparison2
comparison

improvement rates in year 2000

improvement rates in year 2020

mortality in the third millennium7
mortalityin the third millennium

The new CMI basis is equivalent to:

1.1% p.a. improvements for a 65-year-old male

The cohort basis is equivalent to:

2.4% p.a. improvements for a 65-year-old male

alternative methodologies
alternative methodologies
  • Wide range of different approaches
    • Parametric methods
    • Projection by cause of death
  • Useful for assessing the reasonableness of mortality projections
  • Some methods suggest there is an element of “inevitability” about future improvement
an element of inevitability
an element of inevitability

“A degree of anticipation is possible within lifetimes….through those things which make an imprint on life at one point, and which are carried on into later life”

Professor Michael Wadsworth

implications for the annuity market
implications for the annuity market

Difference in annuity values:

CMI vs cohort future mortality improvements

Assumptions:

Annuity values are for a single life male aged 65 - base experience is as per PMA92 - 1999 commencement

implications for gaos
implications for GAOs
  • If the cost of a 9:1 option for a male aged 65 is evaluated using a 5% interest rate and two mortality bases:
    • PMA80c2010
    • PMA92 with cohort projection (vesting 2015)
  • The difference is….
implications for gaos1
implications for GAOs
  • If the cost of a 9:1 option for a male aged 65 is evaluated using a 5% interest rate and two mortality bases:
    • PMA80c2010
    • PMA92 with cohort projection (vesting 2015)
  • The difference is….

82%

implications for pensions
implications for pensions
  • Some pension scheme liabilities may be underestimated by as much as 30%
  • Pension schemes may need to increase funding rates by as much as two thirds

Assumptions:

Liabilities = 3 times salary roll, current funding rate = 15%, average future working lifetime = 15 years, current mortality basis = PA(90)-2, actual mortality experience = PMA92 with cohort projection, current surplus = none, average scheme member = active male aged 50, spouses pension = 50%, real yield in retirement = 2%

slide41
but...
  • Projections assume that research into the ageing process has no material impact
  • Is this likely...?
anti ageing research
anti-ageing research
  • “…if we develop ways to repair the ageing tissues with the help of embryonic cells, we could add 30 years to human life in the next decade. And beyond that, as we learn to control the genes involved in ageing, the possibilities of lengthening life appear practically unlimited.”
  • Dr William Regelson - Professor of Medicine
  • “The only practical limit to human lifespan is the limit of human technology.”

Dr Michael Rose

anti ageing research1
anti-ageing research
  • Telomerase - “the immortality enzyme”
  • “Gerentogenes”
  • Stem cells
  • Free radicals & antioxidants
  • Hormone treatments - e.g. DHEA
  • Caloric restriction
implications
implications
  • In a low inflationary environment the future has greater financial significance
  • The financial and social implications of future mortality change could be huge
  • More research is needed
  • Actuaries need to do this research