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Status, longevity and the age pension

Policy makers seem to overlook the fact that people of higher socio-economic status have longer life times. Unfortunately, there is little data from Australia to study this effect. It requires greater study considering the impact on financial planning for the high socio-economic client and the topical issue of increasing the age pension entitlement age.

Socio-economic status

Until 2005, the UK Office of Statistics published separate mortality tables every five years for six different occupational classifications. This is the best public mortality data set available at a national level related to socio-economic status. The classifications range from Class 1 (‘Professional’) to Class V (‘Unskilled’). The difference in average life expectancy from age 65 for these two classifications was 4.2 years for males and 4.3 years for females in the 2005 data. Since the first data in 1976, life expectancy increased more for higher status than for lower status.

There are a range of possible explanations. Unskilled occupations may have involved greater risk and lead to health problems in later life. Professionals may have developed better diet and health care habits that extend into later life. However there are deeper dimensions and career experiences within occupations.

Someone who has studied these deeper dimensions is Sir Michael Marmot. Originally from Australia where he graduated in medicine in 1968, he became an international expert in longitudinal studies of health and longevity. His book, ‘Status Syndrome’, published in 2004, is a comprehensive coverage of his work in a field that might be labelled psychosocial effects on health and longevity. My conclusions from Marmot’s work are that whilst health status and income are significant determinants of longevity, differences in longevity in later life are also due to the level of autonomy and engagement people have enjoyed in their careers.

A first implication of these conclusions is that financial planners lucky enough to capture clients with these fortunate career attributes as well as financial self sufficiency, need to factor in a substantially longer life time (and future improvement) than population averages.

A second implication relates to how age pension policy is being managed. In current public debate it is an easy logic to argue something like “since the age pension started in 1909, average life expectancy has increased by 25 years so we need to keep updating the age pension entitlement age”. Average life expectancy is a neat tool for this argument; however it ignores the dimensions around this average of people with different status.

For example, women now in their 50’s and 60’s who through child rearing and divorce may have had little opportunity to enjoy autonomous and engaging careers may have little in the way of superannuation and financial assets. Waiting until age 67 or 70 for the age pension, with limited employment opportunities and below subsistence unemployment benefits, is not a satisfactory situation. Similar arguments could be applied to manual workers who physically struggle to continue occupations past age 60.

A more sophisticated approach

A better approach to age pension reform than just increasing the eligibility age for all would be to apply a more sophisticated status and financial means test from say age 60. This could be blended proportionately with a different status and means test applying fully from say age 80. Full pension rates might be different in the age 60 and 80 formulae. This approach could accommodate full inclusion of home value and (non-annuitised) superannuation assets with greater public acceptance. Let’s stop treating people as if they’re all the same when they reach age 70.

Editor’s Note: For additional material on this subject from the Wall Street Journal, 18 April 2014, see ‘The Richer You Are, the Older You’ll Get.’

 

Bruce Gregor is an actuary and demographic researcher at Financial Demographics and established the website www.findem.com.au.

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