Longevity gap exposes retirement divide

Australian's life expectancy can vary by more than a decade depending on their socio-economic circumstances, highlighting significant differences in how long people may need their retirement savings to last, new research from Actuaries Institute found.

The Dialogue Paper, Bridging the Longevity Divide, found an 11.5-year difference in life expectancy at age 60 between men in the most and least advantaged socioeconomic profiles examined. For women, the gap was 9.1 years.

The analysis used linked, de-identified microdata from the Australian Bureau of Statistics' Person Level Integrated Data Asset, examining Australian's aged 60 to 100 based on mortality rates observed in 2016-17.

The research combined factors including income, marital status, home ownership and area-level socioeconomic advantage to examine how longevity varies across different population groups.

Paper co-author and UNSW Business School associate professor Fei Huang said the scale of the differences was notable.

"Our analysis shows that life expectancy can differ significantly when we consider the combination of people's circumstances," Huang said.

"For example, single, lower-income non-homeowners in disadvantaged areas had considerably shorter life expectancies than married, higher-income homeowners in more advantaged areas."

The findings have implications for the design of retirement income products, particularly lifetime income streams, where assumptions about how long retirees will live influence both pricing and the level of income available.

Azuria Partners actuarial consultant Phillip Clark said applying a uniform life expectancy assumption could overlook significant differences in retirement needs.

"How much someone can comfortably draw down from their superannuation depends in part on how long they can expect to live," Clark said.

The paper notes existing annuity pricing is generally based on relatively advantaged pool of purchases, which could affect the value such products offer to less advantaged Australians.

The authors have called on trustees, providers, regulators and advisers to consider how the findings could inform retirement income strategies, product design and pricing, while also improving Australians' understanding of longevity risk.