Mortality improvement is not what it used to be.
Public discussion increasingly assumes that longevity will continue to improve rapidly, driven by medical innovation and lifestyle optimisation. From an actuarial perspective, mortality data offers a more sober message. Across developed countries, including Australia, mortality improvement has slowed over the last decade.
Historically, longevity gains were driven by reductions in early and mid-life mortality through the reduction of acute illnesses. Today, mortality risk is increasingly shaped by chronic illness, obesity and mental health, factors that do not lend themselves to smooth, predictable improvement.
A crucial distinction often lost in the longevity debate is the difference between living longer and living healthier. Mortality may improve, but morbidity is consequently being extended. More people are surviving into older ages with chronic conditions, cognitive impairment or functional disability, with one in two people with at least one chronic condition[1].
For actuaries, this shifts the risk profile. Extended morbidity increases the cost and duration of aged care, disability support and healthcare expenditure. It also reduces the capacity to work at older ages, increasing reliance on external income support.
Rising morbidity and reliance on government support
When morbidity increases, individuals are less able to self-fund retirement and care needs. From an actuarial standpoint, this translates into greater reliance on government systems such as the Age Pension, public healthcare, disability support and subsidised aged care.
Importantly, this reliance is unevenly distributed. Lower-income cohorts experience higher morbidity and lower asset accumulation, making them more dependent on government support earlier and for longer. Longevity gains in these groups, without corresponding health improvements, increase fiscal pressure while exacerbating inequality.
Implications for retirement income products
These dynamics matter directly for retirement income products, particularly life annuities. Life annuities pool longevity risk, but they are priced on mortality, not morbidity. If mortality improves only slowly while morbidity expands, annuity payments may be received for longer periods, but by retirees with higher care and medical costs.
From the retiree’s perspective, life annuities offer valuable protection against outliving assets but this may feel less attractive if much of later life is spent in poor health. From the insurer’s perspective, assuming aggressive longevity improvement without recognising morbidity trends, including their flow on effect to mortality, risks mispricing.
The result is a market that hesitates to purchase or avoids purchasing life annuities, while providers remain prudent and conservative in pricing their retirement income products.
A more actuarial framing of longevity
Actuaries do not deny longevity gains, but we recognise their distribution and quality matter more than their headline size. The real challenge for retirement systems is not just lifespan extension, but managing the interaction between mortality improvement, extended morbidity and uncertain retirement duration.
The actuarial task is therefore to design products and systems that deliver better member outcomes with income security, flexibility and dignity across an increasingly uneven ageing process. In that sense, the fixation on longevity risks obscures the more urgent question of ‘how people live, not just how long’.
Sankarshan
Sankarshan and the team at McGing Advisory & Actuarial provide a wide range of consulting services to life insurers, friendly societies, wealth managers and super funds. We combine deep actuarial and industry expertise to help financial services players meet their challenges to optimise growth.
[1] Health conditions prevalence, 2022 | Australian Bureau of Statistics