Longevity gap between rich and poor impacts pensions, annuities: study

Differences in the life expectancies of rich and poor Canadians could affect pension policy and annuities, a study from the C.D. Howe Institute says.

High earners living longer change the balance of pension contributions and benefits, says the study, called “Rich Man, Poor Man: The Policy Implications of Canadians Living Longer.”

“If those who are living longest are the ones with the highest annual pension benefits, then the total costs of the pension payouts may be higher than expected,” it says.

The study’s findings, based on data from CPP contributors born between 1923 and 1955, is relevant to private annuity markets, which are shaped by the longevity expectations of potential purchasers. The authors also said the relationship between income and longevity could impact public retirement income programs.

The study says the highest-earning Canadian women are living longer than the lowest-earning women by three years. For men, the difference is eight years.

Since 1965 the life expectancy of women has increased by 6.4 years after the age of 50, and by 7.7 years for men. The study used a sample of people alive at age 50 that’s representative of the working population outside Quebec and who had contributed to CPP at least once.

The study didn’t find a causal relationship between earnings and longevity, as life expectancies have improved across all earnings levels. Higher education and different health habits may affect longevity more than income, it said, and the longevity gap has not grown over time.

“However, longevity is a highly valued aspect of well-being, so its distribution across different types of Canadians matters,” co-author Kevin Milligan said in a release.

Read the report here.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.