Longevity Gains Show Need for More Savings

The Society of Actuaries (SOA) has found new evidence that longevity is continuing to improve in the United States. The uptick is incremental, but it’s definitely there.

The evidence appears in a newly updated “mortality improvement scale” that SOA has published for use by pension plans. Plans use the scale to project mortality rates.

"The data continues to show that people are living longer, but longevity is increasing at a slower rate than previously available data indicated," said Dale Hall, SOA’s managing director of research, in a statement about the new scale.

While this news does not indicate that a bunch of Methuselahs are suddenly roaming the streets, it does reinforce earlier SOA research showing that longevity, at least among pension plan participants, is improving.

Longevity is not imaginary

For consumers and pension plan participants, the finding undergirds the retirement industry’s message that increased longevity is not a figment of the imagination, and needs to be taken seriously.

The finding also has implications for practitioners and experts in the pension industry. These implications have to do with pension plan liability.

Called MP-2015, the new scale includes Social Security Administration mortality data from 2010 and 2011. That’s two more years than in the SOA’s previous scale, MP-2014, which debuted one year ago. The 2014 scale applied to historical SSA mortality data between 1950 and 2009.

The now larger database shows that longevity improvements are not only still there but they are continuing to increase a bit. The improvements vary by age and gender, but appear to trend in the low single-digit range.

News of SOA’s 2015 scale may be helpful to retirement professionals in a couple of ways. First, the scale may help re-energize professionals as they talk with clients about longevity trends and how long the clients’ retirement assets might need last.

Second, if and when the general public learns about the new data from non-industry sources, that could help increase public awareness about longevity trends and the impact on retirement security. Should consumers mention this to their advisor, that could open up productive discussion about retirement planning.

The MP-2015 is designed for use by actuaries and pension experts, and its data pertain to pension plan participants not all Americans. This means the general public many never see it or run into anyone who has.

Either way, this could have a positive effect. Several studies show that many people need help connecting the dots between longevity and retirement planning.

For instance, a Blackrock survey of investors in 2013 found that 72 percent had given “serious thought” to how increased longevity affects their need for investment income, yet only about 20 percent said that identifying better income-generating investments would be a major focus for them in the next year. Forty-three percent said it will be only a minor focus, and 36 percent said it will not be a focus at all.

Implications for pension plans

The MP-2015 scale has ramifications for pension plan sponsors in the area of managing pension plan liability. Preliminary estimates indicate that updating to the MP-2015 might reduce a plan's liabilities by up to 2 percent, depending on specific plan characteristics, SOA said.

Those percentages may seem negligible but they may turn heads in the pension market, especially among plans that are underfunded or veering towards that state.

Although plans don’t have to use the SOA scale, many do so when running projections and measuring private retirement plan obligations. If calculations reveal that use of the new tables will help reduce a plan’s liabilities, that could make a difference in overall plan health.

Concerns about pension liabilities are very real to many employers. In fact, Seattle-based consultant Milliman, Inc. recently reported that the 100 largest U.S. corporate pension plans that it follows had experienced a $28 billion decrease in funded status in September 2015.

This was based on a $19 billion decrease in asset values and a $9 billion increase in pension liabilities, causing funded status to drop from 83.3 percent to 81.7 percent.

Professionals working in the pension field need to perform their own calculations to determine the potential impact of the MP-2015 on their plan, according to Hall. Every plan is different, he explained, “so it is up to plan sponsors, working with their plan actuaries, to determine whether to incorporate MP-2015 into their plan valuations.”

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].