In 2014, the Society of Actuaries updated its baseline mortality tables for the first time since 2000 to reflect significant gains in life expectancies seen through 2008—a major revision that predicted future improvements based partly on that trend. That led many companies, expecting their retired employees to live longer and longer, to revise their estimates of pension obligations upward.
But as it turned out, those assumptions were too optimistic about how fast death rates would keep improving. Updates in the last two years, based on more recent mortality data, have pulled down companies’ estimates of what they’ll owe future retirees. The 2016 update would lower pension obligations by about 1.5 percent to 2 percent, all else being equal, according to the Society of Actuaries report. (The group draws on data from the Social Security Administration, the Centers for Disease Control and Prevention, and the Centers for Medicare and Medicaid Services.)
And because accurate death records take a long time for the government to compile, the revised estimates published in 2016 incorporated mortality data only through 2014. The picture for 2015 looks bleaker still: The overall U.S. death rate increased that year, the CDC has since reported.
It’s still unclear exactly how Americans’ waning life-expectancy gains will mean for public-sector pension obligations, but the effect will likely be similar. The Society of Actuaries’ tables are designed for private-sector retirement plans; the group is still working on an update for public-employee pensions.
There’s no simple answer for why longevity gains are slowing. For years, economists and public health experts have been trying to ascertain what’s behind America’s troubling death trends, among them a rise in death rates for certain demographic groups. A much-discussed 2015 paper suggested that mortality was rising for middle-aged white Americans, citing suicides, drug overdoses, and alcohol, collectively sometimes referred to as “deaths of despair.” Women have been particularly affected.
While overall mortality rates are influenced by deaths from infancy to old age, pension payouts primarily reflect how long people survive after retirement. But looking just at people over 65, the death rate worsened in 2015 for that group as well, according to a July report published by the Society of Actuaries. That was the first reversal for retirement-age Americans since 1999.
“That’s actually rather remarkable,” says Keener, the Aon actuary. “Even in the previous years, you’ve seen a slower degree of improvement for the pensioners, but you haven’t seen a decline in life expectancy.”
The broader trend isn’t unique to the U.S. A July publication from the Institute and Faculty of Actuaries in the United Kingdom found that the U.S., Canada, and Britain have all experienced similarly slowing gains since 2011. That report suggested the combination of the recession and cuts to social safety-net programs may have played a role. “These signs should be taken as warnings that worsened health care, behaviour and environment can reverse decades of success in health and longevity,” wrote Joseph Lu, chair of the Institute’s mortality research committee.
Changes to life expectancy in the U.K. could cut 310 billion pounds from British private-sector pension obligations, or 15 percent of the total liability, PwC estimated in May, although other actuaries have called that figure “relatively extreme.”
The question actuaries can’t yet answer is whether the slowdown is a short-term blip or a more permanent shift. If mortality improved by 1 percent a year for most of the past 70 years, might the U.S. revert to that soon? Or, Keener asks, “is this really a new reality that we’re living in?”