Adair Turner, chairman of the Pensions Commission has warned against government issuing ‘very' long-term longevity bonds, due to increasing UK life expectancy.
Speaking in relation to longevity at a seminar for the Actuarial Profession, Turner said: “Uncertainties about future life expectancy are greater than previously recognised.”
He believes public policy and pension fund management should be formed on the on the basis of male life expectancy of 65 in 2050 increasing by anywhere between 20 and 29 years.
Turner said: “The government should not issue very long-term longevity bonds since it already faces significant exposure to increased life expectancy. Long-term pre-retirement longevity risk should be borne by individuals who will have the option of working later if life expectancy increases more rapidly than expected.”
He also warns of the increasing demand for annuities, due to a mass migration of Defined Benefit (DB) schemes to Defined Contribution (DC).
Recent research conducted by human resources services firm Hewitt Associates, suggests there are now more open defined contribution schemes than defined benefit for the first time.
Turner says this might potentially put a strain on annuity prices and advises individuals to delay the purchase of an annuity to a later date in order to achieve a decent income, adding 75% of annuities are purchased at or before age 65.
In March, the government announced Britains aged 65 and over will exceed 20% of the countries population by 2025.
Separately, the Department for Work and Pensions (DWP) yesterday announced as at November 2004, just in excess of 10.7 million (99.9%) UK people over State Pension age were claiming a key benefit.
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