New mortality study adds to retirement conversation

Actuaries have calculated mortality rates among Australians who use annuities. It is research they hope will help develop retirement income products including CIPRs.

The Actuaries Institute and Rice Warner used UK mortality data on annuitants to calculate similar rates for the Australian population, in research funded by David Orford.

A 60 year old Aussie man has a 6.6% probability of dying between their 60th and 61st birthday, according to the Australian life tables 2010-2012 that are calculated by government actuaries.

The new research estimates this probability could be actually as low as 2.31% or 2.70%, depending on which approach they take while crunching the UK numbers. The numbers are indicative only and based on limited data.

The results are not a surprise but further calculations confirm that people who know they will live longer are more likely to take out annuities, a spokesperson said.

"Typically, those who choose to invest in pooled retirement income products have longer life expectancies (lower mortality rates) because those in poor health do not purchase a product that could see them lose their capital on death," the report said.

"Longevity can also impact perceptions of value-for-money as longer life expectancies increase the price (reduce the return) of the products. This will be a particular issue for women who have longer life expectancies than men."

The researchers tried to get experience data from all Australian life insurers with annuities and actuaries to calculate the rates. However, it was not able to find enough Aussie data. Therefore, it used UK data from its actuaries body to calculate Australian rates.

Actuaries Institute chief executive Elayne Grace said: "There is unfortunately a shortage of Australian data covering retirement income products because of an historic focus on products such as Account-Based Pensions, where there is no longevity protection. That poses difficulties in making assumptions about what will deliver the greatest benefit to retirees."

The data has its limitations and is indicative only and can't be relied upon pricing or valuation of retirement income products, the paper said.

The paper, Exploring Retiree Mortality, comes in response to the Australian government's decision to stimulate industry development of post-retirement products.

David Orford's firm Optimum Pensions is launching a lifetime annuity with an insurer taking on the longevity risk developed as a CIPR.

Read more: Actuaries InstituteDavid OrfordElayne GraceOptimum Pensions
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