Your life expectancy matters and not just for the obvious reason!
The recent changes to pension rules mean that, from April 2027, pension funds become part of your estate on death and subject to inheritance tax and have left many people wondering when they should consider drawing down on their pension funds and giving them away (particularly with the seven year clock for inheritance tax in mind). At the same time, it’s also important to consider for how long your pension funds will need to provide you with money to spend.
Fortunately, the Office for National Statistics produces some useful information to help us to consider how long the pension might need to last, as well as when the probabilities suggest that you may have seven years to live.
Many people will be surprised to see that average life expectancy doesn’t drop below 7 years until age 84 for men and 85 for women. And the averages are generally considered to be higher for affluent people in the South East. This is both good news and bad news – good news as you can wait longer to make gifts and expect to live seven years, but bad news as your pension fund may need to support you for longer than you imagined.
The table below confirms the average life expectancy at various ages. Nobody is average of course!
| Age | Average Life Expectancy in Years (Office for National Statistics) | |
| Male | Female | |
| 60 | 25 | 27 |
| 65 | 20 | 22 |
| 67 | 18 | 21 |
| 70 | 16 | 18 |
| 75 | 12 | 14 |
| 80 | 9 | 10 |
| 84 | 7 | 8 |
| 85 | 6 | 7 |
The ONS also produces another set of statistics, showing how long you have a 1 in 4 chance of living for. A 60 year old man has a 25% chance of living to age 92, for example, and it is age 94 for a 60 year old woman. That extends to 94 for an 84 year old man and 95 for an 85 year old woman.
A lot can change in a ten or twenty year period, so it can be risky to make gifts too soon. Our lives can change and external factors (e.g. an increase in living costs) can have an impact. It’s worth remembering how frequently pension rules change too – after all, pensions only became exempt from inheritance tax in 2015! This suggests that it may not make sense to make large and irreversible changes to your finances (e.g. a large gift) too early.
As always, we are here to help you plan for the future, and if you would like to discuss how you are personally affected by this, please contact us.
Philip Wise | philip@sussexretirement.co.uk
Managing Director and Chartered Financial Planner
This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
