Are pension schemes focused on the wrong age?
For intermediaries only
Everyone thinks they know their age, but the number of times we circle the sun may not be the most accurate measure. James Phillips looks at emerging science and the impact on retirement policy.
When forecasting longevity, defined benefit (DB) schemes use life expectancy projections from various authoritative and scientific models.
But doing so puts a focus on the chronological age of members, not their biological age. Surely, they are the same, it would seem - but emerging science finds this may not be the case, and there could be policy and planning consequences.
Put simply, the chronological age of a member is the number of journeys around the sun experienced during a lifetime. In contrast, the biological age can be higher or lower depending on anatomical wear and tear.
For example, someone who celebrates their 50th birthday may have the body of a 44-year-old due to lifestyle choices; they are heavily active and do not smoke.
This may seem a pedantic and almost overblown argument, but the science allowing people to find out their"true" age is becoming democratised.
Through a home-testing kit, blood can determine the length of a person's telomeres. Described as"like the plastic tips at the end of shoelaces", they bookend DNA strands and shorten depending on a person's lifestyle. When they become too short, DNA strands become damaged and the replenishment of cells reduces.
Ancestry's service that allows people to discover their ethnic and genealogical heritage by sending in a swab of DNA is a good example of this - and one that improves as people use it.
Schulich School of Business professor of finance Moshe Milevsky reckons that, while schemes do not need to be asking members their biological ages, they could prepare for members stating their age is different to what their records show.
Speaking at a conference last month, he said,"Some people are going to have a biological age that's over their chronological age; some people will have a biological age that's under."
"They're going to affiliate themselves with that age," he noted, adding this will compound if people realise they can reverse it.
He pointed to a 2018 Dutch case where a man asked a court to reduce his age by 20 years in order to improve his dating prospects. Emile Ratelband had no evidence beyond feeling younger, and the court rejected the application.
But, in its judgment, the court said Ratelband was"at liberty to feel 20 years younger than his real age and to act accordingly", only dismissing his application on the basis of"undesirable legal and societal implications".
For example, the court noted that it would have opened the door to allowing people to declare themselves older than they are, and therefore able to bypass age-related laws on drinking, driving, and voting.
Nevertheless, if a verified and undisputed scientific basis in telomeres can be found, it could become harder for a court to retain this view. This would have policy implications at a national government level, but also for pension scheme management.
As Ratelband noted in his case,"If I'm 49 [rather than 69], then I can buy a new house, drive a different car. I can take up more work."
If a defined benefit pension scheme accepted this, it could provide a more accurate reflection of liabilities. For defined contribution, it could allow members to get around potential age discrimination, work for longer, and save more into a retirement pot; or make the most out of their pot by better understanding how, and how long, they can use it.
Milevsky said,"What happens when people stop associating themselves with their chronological age? When they say, ‘Don't force me into it; I don't want it on a birth certificate, I don't want it on a driver's licence'?"
Many of the socioeconomic factors affecting biological age can be assumed - wealth and geography, for example - but these impact where people have a longer than average life expectancy, allowing them to work longer and defer access to their pensions. There are limited methods in which to access a pension before a certain age, even if life expectancy is below average.
Using the wrong age?
If a consensus emerges around how to measure biological age, and wearable technology provides an easy method for people to test it, there could be profound consequences for policy, Milevsky said.
All retirement policy aligns with chronological age - the state pension now arrives on a person's 66th birthday, for example. But an accurate assessment of biological age could affect annuity pricing, the cost of life insurance, and the old-age dependency ratio.
Milevsky noted that, when the British government brought in the Old-Age Pensions Act in 1908, there was a movement against pegging legislation with chronological age - and this is not an argument that has gone away.
When Lloyd George, as chancellor, introduced the law, many decried the use of chronological age as"arbitrary" and ignoring the varying life expectancies between sex, class, and geography. As Pat Thane notes in the 1997 book, Gender, Health and Welfare,"working-class representatives especially argued that no single age was suitable because individuals deteriorated at such variable ages".
Campaigners continue to shout for a variable state pension age; John Cridland's independent review of the state pension two years ago considered this.
The debate is age-old but the new technology and science could make age more"salient" and create an"administrative nightmare" for pensions, Milevsky said. The advancement and popularity of this could be some way off - but the speed of technological change is increasingly rapid.