Figures released last week by the Canadian Institute of Actuaries (CIA) confirm that not only are Canadians getting older, they are also living longer. According to global professional services firm Towers Watson, the figures also highlight the risk that increasing life expectancy can pose for defined benefit pension (DB) plan sponsors.
The draft set of updated mortality tables, used by actuaries to measure pension plan liabilities, or the amount of money needed to pay current and future pensioners, show that the life expectancy of a 60 year old male today has increased by 2.9 years (from 24.4 to 27.3 years) compared to pension mortality tables currently in use. The life expectancy of a 60 year old female has increased by 2.7 years (from 26.7 years to 29.4 years).
“This study highlights the risk that increasing life expectancy can pose for DB plan sponsors” said Gavin Benjamin, a senior retirement consultant at Towers Watson in Toronto. “Just as sponsors were beginning to see a reduction in their pension deficits due to improvements in the global equity markets and rising interest rates this year, the increase in life expectancy suggested by the CIA study could reverse much of this gain.”
The implications of lengthening lifespan are not limited to sponsors of DB pension plans, Towers Watson says. Employers sponsoring defined contribution (DC) and other types of capital accumulation plans should also take note.
“Increasing life expectancy could mean that employees with a DC or capital accumulation plan will need to save more in order to afford retirement”, says Toronto-based Michelle Loder, Towers Watson’s Canadian DC leader. “This could result in employees delaying their retirement until they have accumulated sufficient retirement savings, possibly challenging employers’ ability to manage career progression and workforce objectives.”
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management.