From The Telegraph, October 26 2005:

By Pamela Atherton and Teresa Hunter

Pension funds will be placed under more strain and annuity rates may tumble further, as a result of a sharp improvement in life expectancy rates, particularly among older age groups.

New research, to be unveiled by The Actuarial Profession tomorrow night, will show that those seeing the greatest increase in longevity is the generation born in the early 1930s.

Stephen Richards, one of the authors of the research, said: "This means that people currently in their 70s are going to be drawing their pensions and annuities for much longer, so what they are getting is more years of healthy living, rather than more years of disability."

He added: "The report also projects that by 2040, 80-year-olds could be experiencing the same mortality as 60-year-olds were in the 1970s."

This means that only two per cent of people who turn 80 in 2040 would be expected to die in that year. In the 1970s, 13 per cent of those turning 80 would not live to see their 81st birthday.

The paper shows that this increased longevity is due to lower rates of smoking and the eradication of many infectious diseases, while mortality rates for heart disease are on a steep decline. They have been falling strongly for the past 30 years and are projected to continue to fall for the next decade.

The trend has caused annuity rates to fall, and has put company pension schemes under considerable strain.

However, mortality rates are actually rising for people in their 30s due to heavy drinking. The number of young men dying from liver disease in England and Wales has tripled in the past 20 years.

The research may cause many more pension schemes to review their current funding arrangements. Last week it emerged that two of the UK's biggest employers, Scottish & Newcastle and British Land, are reviewing their schemes.

S&N has told 4,000 employees who are members of its closed final salary scheme that it is consulting on whether to transfer them to its "career average" scheme, which will result in many staff receiving a lower income in retirement.

A spokesman for S&N said: "If you have decided that a final salary scheme cannot continue you have to be fair to people and provide them with the best realistic alternative." S&N's £1.7 billion fund has a £200 million deficit.

British Land said all its pension arrangements were currently under review, but declined to provide any further details.

© Copyright The Telegraph 2005.