Over-50s underestimate life expectancy by eight years

November 29th, 2017

Some eight in ten savers between 50 and 64-years-old have underestimated their life expectancy, potentially leaving them with a shortfall in retirement, according to research.

The belief was most acute for women who, despite their life expectancy currently sitting at age 90, believed they will only live to age 82, according to research conducted by Retirement Advantage.

Men also underestimate their longevity, believing they will live until age 82 when on average their life expectancy is age 88.

Three-quarters of men underestimated their life expectancy, while 83% of women did the same. Just 5% and 2% guessed the average rate respectively.

The figures came from a survey of 1,005 over-50s yet to retire with private or defined contribution (DC) pensions, conducted by Censuswide in June, and an analysis of 2014 Office for National Statistics estimates of life expectancy.

With the introduction of Freedom and Choice in 2015, this could leave DC savers with poor retirement provision in their later life if they raid their pension pot early, or access an unsuitable drawdown product, the firm argued.

Pensions technical director Andrew Tully said the uncertainty of life expectancy combined with pension freedoms could lead to problems in the future.

“Planning for retirement can be a complicated business and no-one knows how long they will actually live,” he said. “The pension freedoms have given people the opportunity to plunder pension pots early, often before planned retirement ages.

“This is potentially storing up trouble for the future, especially if people are underestimating how long these pensions need to last in retirement.”

The advisory firm called for a “radical rethink” of pensions and retirement policy, although it did recognise regional differences are a key factor to retirement planning which should be considered with an adviser.

In September, it also found three-quarters of advisers had seen an increase in defined benefit transfer requests in order to access the pension freedoms, potentially giving up a guaranteed income for retirement and risking running out of money too soon.

 

Source: Professional Adviser