Pensions are very popular financial products, and are quite strongly encouraged, both through favourable tax laws and employers contributions. In all cases I am aware of, neither the contributions nor benefits depend on personal circumstances, in particular life expectancy (LE) and marital status. For example, a well recognised predictor of LE if where you live. If we compare a single person living in Glasgow (LE = 74.8) to a couple living in Kensington and Chelsea (LE = 87.45, joint LE = 94.45) with a retirement age of 65 the London couple is likely to receive about two and a half times as much than the Scottish single. From an individual's point of view, this calculation could be refined using personal medical information, such that for many people the difference in expected return could be greater than this very coarse analysis.
A major reason why pensions are a popular investment is that if you do live a long time, you do not run out of money, effectively insuring yourself against not dying in the next few years. This can be contrasted to life insurance, where you are insuring yourself against dying in the next few years, and that frequently does take into account medical information, allowing personal circumstances to be priced into the deal.
- Is my general assessment correct? Am I missing something in how pensions work that means this is already priced in?
- Are there any resources to help an individual calculate the likely value of a pension, taking into account things like medical history and marital status?
- Are there any financial products that provide the "reverse life insurance" feature of pensions and the actuarial assessment of personal circumstances of "normal" life insurance, that would be suitable for an individual who is single and below average health? If any benefited from favourable tax treatment, or even allowed one to take advantage of employer contributions this would be a large bonus.
LE calculations for individual are mean of male and female here. Joint LE alteration is maximum from here, assuming the healthiest couple will have highest gain. I know that some pensions can pay out to a non-spouse on death of a single person, but without children I do not see this is much value to the individual. I also know that the calculations are wrong, as they do not take into account the shape of the distribution, but I hope they illustrate my point.