A study by the Actuaries Institute has shown a strong correlation between mortality experience and the amount of pension/annuity being drawn. Those drawing smaller pensions experience much higher mortality.

The findings also indicated that the selection inherent in voluntary purchase of an annuity is equivalent to that inherent in life insurance underwriting. It also shows that there is significant scope for better annuity rates for smokers.

There is currently no compulsion in Australia in relation to the purchase of retirement income stream products and it is well recognised that the process of voluntary purchase is highly selective.

The Actuarites Institute highlighted the findings of its study in a report entitled “Exploring retiree mortality” released last month.

The paper also calls for the development of mortality tables for purchasers of annuities and other guaranteed income products. There is currently a shortage of such data because Australians have preferred to take products such as Account-Based Pensions, where there is no longevity protection.

The annuity market in Australia is small and many life insurers have withdrawn from the market over the last 20 years.

The Actuaries Institute engaged Rice Warner, a financial services advisory firm, to carry out the study into the mortality of older Australians who hold annuities.

The aim of the study was to produce a series of mortality tables that would enable product manufacturers to design and price appropriate products that will mitigate the financial risk faced by long lived individuals.

Given the dearth of Australian data to allow for a full development of mortality tables for Australian annuitants, the Institute decided to use data obtained from the Continuous Mortality Investigation (CMI, a subsidiary of the Institute and Faculty of Actuaries in the UK) to examine the features of retiree and annuitant mortality and explore how these insights might be translated to Australian conditions.