What assumptions do you use to calculate life expectancy?
The life expectancy age shown is the age that the client has 50% probability of living to, based on mortality tables. It is therefore the median, or 50th percentile, of the maximum potential age they are predicted to live to. There is a 50% chance they may die either before or after that age.
Life expectancy is shown as a whole number, so if the median is a fraction of a number it will round up.
The estimate of life expectancy is calculated using pensioner mortality tables for males and females respectively, which are published by the Institute and Faculty of Actuaries (IFoA) and updated annually. This includes an allowance for people living longer in the future based on experience observed in studies by the CMI (Continuous Mortality Investigation committee of the IFoA).
The mortality basis outlined above is in line with the FCA’s COBS (Conduct of Business Sourcebook) and the SMPI (Statutory Money Purchase Illustrations) basis.
The life expectancy quoted is from when that customer reaches their stated retirement age. So the life expectancy of someone currently aged 30 will be higher when they reach 65 than someone who is currently aged 65.
The rates assume general mortality levels, so they do not reflect the reduced life expectancy that may result from health, lifestyle or smoker status.
The following factors affect life expectancy numbers quoted in the Quick View and Full View options:
- Calendar year
- Retirement date
Age and gender are obvious factors. Calendar year is a factor because of the way the CMI mortality improvement factors work. For example, mortality is expected to be lighter in 2015 compared with 2014.
Retirement date is listed as a factor because no mortality is assumed before retirement date. In other words, the tool assumes that clients will survive until retirement with 100% certainty, and only then will mortality begin to take effect at rates then assumed applicable.