|Date:||16 April 2018|
|Authors:||Cormac O'Dea and David Sturrock|
As individuals are given more control over saving for retirement and use of pension wealth, their ability to plan for the future is increasingly important.
In a new report, funded by the IFS Retirement Savings Consortium and the Economic and Social Research Council, IFS researchers draw on a large household data set to investigate individual survival expectations and their relation to health, wealth and other individual circumstances.
Comparing subjective (reported) expectations of survival with official (ONS) life table survival rates, researchers reveal large and systematic biases in individuals’ expectations. They find that:
Other key findings include:
Individuals’ survival expectations reflect known risk factors and health status:
Implications for behaviour and policy:
Survival ‘pessimism’ is important in a context of increasing personal responsibility for, and control over, the accumulation of savings and their use in retirement.
David Sturrock, a Research Economist at IFS and an author of the report, said:
“As individuals are given more responsibility for saving for their retirement, and more freedom over how they use those savings in their later years, it is a particular concern that many are systematically misjudging their longevity. When people underestimate their chances of surviving through their 50s, 60s and 70s they may save less during working life, and spend more in the earlier years of retirement, than is appropriate given their actual survival chances. In contrast, people who overestimate their survival chances at the oldest ages may show an undue reluctance to spend their remaining wealth near the end of life. By misjudging their longevity, individuals risk having a lower standard of living in retirement than would otherwise be possible.”
Notes to editors:
1. The report ‘Subjective expectations of survival and economic behaviour’ by Cormac O’Dea and David Sturrock is available on the IFS website here.
2. This analysis draws on data from the English Longitudinal Study of Ageing (ELSA). Data from ELSA were made available through the UK Data Archive (UKDA). ELSA was developed by a team of researchers based at the National Centre for Social Research, University College London and the Institute for Fiscal Studies. The data were collected by the National Centre for Social Research. The data creators, depositors, copyright holders and funders bear no responsibility for the analysis or interpretation of the data presented here. All errors are those of the authors.
3. This paper was funded by the IFS Retirement Savings Consortium and the Economic and Social Research Council (ESRC) through a Knowledge Exchange Grant and by an ESRC Secondary Data Initiative grant (reference ES/N011872/1). This work would also not have been possible without support from the ESRC-funded Centre for the Microeconomic Analysis of Public Policy (CPP) at IFS (grant reference ES/M010147/1).
4. The IFS Retirement Savings Consortium comprises Age UK, Association of British Insurers, Chartered Insurance Institute, Department for Work and Pensions, HM Revenue and Customs, HM Treasury, Investment Association, Legal and General Investment Management, Money Advice Service, and Tax Incentivised Savings Association.