Financial advisers have an opportunity to better support Australians to manage their longevity expectations following the discovery of substantial disparities in life expectancy and mortality by the Actuaries Institute.
A new report, Bridging the Longevity Divide report, based on data from the Australian Bureau of Statistics from 2016 to 2017 reveals life expectancy significantly changes depending on income, home ownership, where people reside, gender and marital status. It also varies between men and women. Applying a single life expectancy assumption to all clients overlooks different needs and outcomes.
Life expectancy at age 60 varies by up to 11.5 years for men and 9.1 years for women across socio-economic groups. Factors that are unsurprisingly associated with shorter life expectancy include being single, not owning a home, having lower income and living in a more disadvantaged area.
The paper’s co-author Dr Fei Huang, associate professor at the school of risk and actuarial studies at UNSW Business School, tells Professional Planner that the findings can help advisers help clients to make wiser financial decisions regarding their retirement plans.
“That means financial advisers could help their clients discuss the longevity risk in a much more concrete and personalised way to help them understand their own longevity expectations and also potential retirement income products and strategies better,” Huang says.
“Research has shown that many people underestimate how long retirement may last or do not fully understand the uncertainty around their own lifespan,” she says.
“And if the clients or the Australian people could better understand their longevity literacy then the financial advisers could firstly help them understand their longevity literacy. Secondly, this can help them improve the quality of the conversation and help clients make more informed retirement decisions.”
Some of the tools that can help reduce that gap include public information, superannuation fund calculators and conversations with advisers.
The actuaries’ report profiled five groups of people over the age of 60 based on their marital status, homeownership, weekly income and where they live. A single woman who does not own a home and gets less than $499 in weekly income in a disadvantaged area is expected to live 23 years after 60 years and men 18 years after 60. Meanwhile a married woman with an income of more than $1000, homeowner and living in an advantaged area can live up to 32 years after 60, while a married man could live 30 years.
The issue of clients forgetting or simply not updating their financial advisers in life changes is not addressed in the report as it is based on a snapshot of data, but the report provides useful baselines to understand the broad longevity differentials across client’s cohorts.
“Presumably, for some of the clients, the lifetime income products may become more meaningful and sensible if they understand how long they may be expected to live.”
Huang believes longevity literacy is very low, not only across Australians but globally. But the information in the report can help with that gap and financial advisers can play an important role.
“These kinds of information could help improve longevity literacy. I think that’s very important for both a healthier and more sustainable Australian retirement income market and for the benefits of the of whole Australia. I think the financial advisors could play a very important role here,” Huang says.
Uptake of lifetime income products remains low, even though the Retirement Income Covenant requires superannuation trustees to formulate a retirement income strategy for members in the retirement phase, having regard to income, risk management including longevity risk, and flexibility; and Treasury’s 2026 Guidance on best practice principles for superannuation retirement income solutions states that the best practice means superannuation trustees will provide their members with access to a lifetime income product that is not the Age Pension.
Huang recommends advisers explore more and understand the interaction with Age Pension. This is a complex situation where different scenarios and clients’ backgrounds means advisers must take a more individualised and customised approach when analysing client scenarios.
“If the clients understand this information better, it may help them make more informed and sensible decisions moving forward,” she says.
Philip Clark, paper co-author and actuarial consultant at Azuria Partners, said in a statement the industry should consider how it can use this new evidence to explore expanding the range of retirement income strategies and products that speak to a greater spectrum of Australians.
“As highlighted in the recent Intergenerational Report from the Government, the retirement income system is expected to play a growing role in the decades to come,” he said.
The report found that those expected to inherit the wealth of advisers’ older clients are already likely in their 50s or 60s and close to their own retirement.
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