“In the long run, we are all dead,” said Keynes. But growing longevity means the long run is happening later and later.
The fact that each generation is outlasting the next is obviously good news. But it also creates a horrendous problem for our governments.
Recently, for example, the UK’s Office of Budget Responsibility ignited much controversy by estimating that Brexit will increase UK government borrowing by £59 billion over the next five years.
But that figure pales into insignificance compared with the cost of increased longevity.
As people live for longer, their medical bills go up. They stop dying of things like heart attacks or strokes and start living for years with chronic conditions such as dementia – often with multiple conditions at once.
Even those who remain relatively healthy will incur greater costs in terms of social or home care, or prescriptions from their GP. On top of this is the increased cost, both to the state and to individual companies, in terms of pension schemes.
In its most recent analysis, the OBR calculated that a rise in life expectancy over the next 50 years of just 0.4 years would increase the national debt by 3 per cent of GDP – roughly the same, in today’s terms, as that extra Brexit borrowing.
In fact, over the last 30 years, male life expectancy in the UK has increased by 5 years – that’s more than 20 times faster than in the OBR’s example.
The real problem, however, isn’t that we’re living longer, but that the way the Government plans for the future utterly fails to take increasing longevity into account.
In its assessment of the UK public finances over the next 50 years, the OBR bases its mortality calculations on what are called “period measures”, produced by the Office for National Statistics. These predict that a girl born in 2039 will live for nearly 87 years and a boy for 84.
Yet in the words of the ONS, “period life tables deal with current mortality rates only and no assumptions are made about future changes”. In other words, they assume no further improvements in life expectancy.
The obvious attraction of using period measures is that they don’t require you to make any assumptions. Trends in life expectancy change unexpectedly, and considerable uncertainty exists about its future direction. So the appeal of sticking with current data is obvious.
Yet exactly the same comments can be made about forecasting GDP – and no statistician would contemplate building their predictions on an assumption that the default rate of GDP growth will be zero.
Over the last 150 years, best practice life expectancy has increased by two to three years every decade. So assuming no further improvements is likely to result in a serious underestimate.
If the Government were to use what are called “cohort measures” of life expectancy, which try to take account of likely increases, a very different picture would emerge.
Under the ONS’s cohort measures, a girl born in 2039 would have a life expectancy of 96.5 and a boy 93.9 – that’s almost 10 years extra for everyone.
If we tweak the calculations to use the most optimistic scenario in terms of increased longevity, we arrive at 111 and 109 for girls and boys respectively – almost a quarter of a century more than the existing estimate.
There is, as these figures suggest, an enormous amount of uncertainty here. Can we expect increases in life expectancy to continue at the same rate as the last 150 years? Should we expect the rate of increase to diminish as we approach some kind of upper biological boundary on how long we can live?
Or will they soar in response to the medical breakthroughs that are predicted in terms of genetics, nanotech and personalised medicine? And how do we predict for – and attempt to fix – the fact that mortality rates among certain demographic groups are far higher than among others?
However difficult it may be to make assumptions about future longevity trends, it is crucial for any long-term analysis of the public finances – and to illustrate the choices that society faces.
For example, if we simply extrapolate the OBR estimate that 0.4 years of extra life produce 3% more debt then using these cohort measures would equate to extra debt of between 75 and 188 per cent of GDP by 2065.
We could, however, dramatically reduce the extra costs by indexing retirement to life expectancy, so people are (on average) in receipt of a pension for a third of their adult life. Bringing in what the OBR refer to as the “longevity link” would mean more taxes and less pensions, and helps to reduce the fiscal pressure.
Such measures would also help us, as individuals, to make better financial choices. Most people do not like to consider their own life expectancy – and those that do tend to look either to their parents or to government statistics as a guide.
Yet if historical trends continue, both of these will be significant underestimates. Which is why switching to cohort measures can help raise awareness about the need for better lifetime planning.
Rising life expectancy should be a great gift – but not if we are unprepared for it. Benjamin Franklin famously remarked that “in this world nothing can be said to be certain, except death and taxes”.
Qualitatively, he may have been right. Quantatively, there is much to discuss.
Andrew Scott is co-author (with Lynda Gratton) of ‘The 100 Year Life – Living and Working in an Age of Longevity’ (Bloomsbury, 2016)