There’s a lot of talk around about the unfairness of defined benefit pensions. Some say it is unfair to give the same pension to a “sick man” as a “well woman” and that the only fair way to calculate a pension is to medically underwrite the pensioner.
Some say that every sick man should take his money from the pool – “it’s every (sick) man for himself”.
I’m thinking about this at the moment.
I started out thinking …
How does an actuary think about death?
There are two ways they think about death; “individually and collectively” but neither way brings much comfort.
Actuaries know a fair deal about death- at least statistically. But they do not concern themselves about the moral arguments surrounding mortality – that is not- and should not be – their business.
The formulation “mean brutish and short” was applied to the life of the poor in the 18th century, the past 200 years has seen not just a general improvement in mortality, but a narrowing of the gap between rich and poor, upper and lower, white and blue collar.
Even so, statistically the poor continue to live shorter (generally) than the rich and whether you consider that unfair or not, the social security systems , in as far as they provide insurance against old age, offer a subsidy from poor to rich.
This is troublesome to those who see redistribution as a tidal flow from rich to poor. But the job of the statistician is to observe, not comment.
Statisticians agree that a disproportionate amount per capita is allocated to the brutally mean and short lifespans of the lower orders. They are higher maintenance- they produce less, spend more of the NHS’ budget and have more resort to social security.
So poor people spend more of the kitty early on, and rich people spend more in later life – principally because they stick around. This is why our welfare state is considered fair,
All of this is empirically provable. There is nothing fair or unfair about the statistics – they just are. For every actuarial model there will be winners and losers.
Actuaries don’t think about you. You are a part of their data-set. An actuary will always be conflicted in influencing your decision, by doing so he distorts the perfect equilibrium of the model. The model is designed to be fair.
One day we will all die by natural causes; death will be managed by health and safety. On this day, an actuary will be able to tell you what fair looks like individually as well as collectively.
One actuary summed up this grim vision with the observation
“We all die the same, it is only the timing of our dying that matters”.
In an ideal actuarial world, fair shares would be universal.
That day may be approaching as the dispersal of death-dates in the UK is decreasing. Death is becoming an equal opportunity employer. Death is getting the diversity agenda.
The NHS and our welfare system aim to get Death dealing with rich and poor, male and female , black and white in the same way. In a perfect world we’d all die fair.
But Death is not there yet. Death can still cheat all predictions letting a 20 a day grannie live into her 90s. killing our youngsters. There’s sill no justice in mortality.
There are those who believe they can predict death’s fickle sickle. We will soon be able to map our genome to understand statistical probabilities of our demise with certainty.
These people think that accidental death will become an outlier 0n the stochastic map. With “health and safety ” – Grim Reaper’s little helper, “death from natural causes” will welcome us all at the Pearly Gates.
Some people will take a “Badass villain death match” with a computer and buy income on a computer’s bet on their likely day of death. It’s an anti-social thing to do.
If we all did it – we’d have no societal aspect to our pension schemes. “Every man or woman for himself” works in a world of universal conformity where natural causes dictate and health and safety manages.
For me Health and Safety sucks, I put no faith in death by natural causes. I know that I will get more than or less than what I put in, the chances of me getting fair shares from my retirement savings approximate to zero.
Actuaries don’t behave with emotion but people do!
So I don’t buy this spurious certainty offered by statistics. Death is still my final frontier and I’m not having a medical report telling me my lifespan. I’m not having a medical to tell me I’m getting a better annuity rate than the next man because I lie about my alcohol consumption.
I think of Yeats when I think of the mean-spirit of annuities
I call those works extravagance of breath
That are not suited for such men as come
proud, open-eyed and laughing to the tomb.
And I set against this Bruce Springsteen’s
Outside there are just winners and losers.. but don’t get caught on the wrong side of that line
We can control what we do alive but even the Boss can’t circumvent death’s time-line.
Nor can I ignore the consequences of living forever, I need “e-ternity insurance” which gives to others if I die and takes from others if I live.
Neither an annuity or bare drawdown is the answer for my DNA.
People who think they can outsource their longevity to an insurance company or investment bank are making a pact with the devil. There is no nobility in this – no mutuality. The single annuitant dies alone.
It may be I die tomorrow, I may live a long long time, but I’m not going to some gypsy fortune teller of a medic to get an impaired life annuity.
Neither am I betting on my imminent demise and ignoring longevity risk.
It may be that I. a reformed smoker, heavy drinker and bon-viveur will not make it to my 70th birthday. I may get a short-term kick from a spend spend spend approach to my money.
But I have a stubborn lust for life. I may need that defined benefit pension into my 90s and beyond.
When I live, I’ll take the income, enjoy the certainty of my pension without fear of tomorrow. And that includes the whining generation Y-Z etc.
Where my head is at
I’ll take my chances in the pool of death. I will stick with my small rights in my DB scheme.
And I won’t be buying an impaired life annuity with my DB rights or my DC savings.
If my need for certainty increases, I’ll buy into more death pools – buy extra state pension , put my DC money into CDC decumulation.
I’m not taking a “Badass villain death match” with a death dating system. I will happily share.
When I’m gone, the death pool can have my money.
Actuaries can divi out my share to those left behind!
I’ll walk proud, open-eyed and laughing to the tomb.
Old is as old does
Hope I die before I get old.