Credit Suisse Explains How Longer Life Expectancy Is Going To Transform The Financial Industry

A new note out from Credit Suisse attempts to explain the social, economic, and market implications of longevity.

Their conclusion? That increasing life expectancy will not only require individuals to change their financial behaviour to fit a more complex pattern and governments to make decisions with new concerns in mind, but that the investment world will be required to provide new financial products and invent new systems to cope with the fact that people just live longer.

healthy life expectancy, germany and uk

Photo: Credit Suisse

A few major points from that report:

  • Financial professionals will see greater demand for relatively safe long-term securities that are easy to use. Longevity will also emerge as an asset class.
  • Annuity contracts will become more efficient for individuals unsure of how long they will live. However, the market for annuities remains small, based on difficulties in calculating the price of the contracts and lack of instruments to head against longevity risk.
  • Analysts should design better models to forecast longevity, given failings of models that have been used up to this point.
  • It will be important for governments to focus on “healthy life expectancy,” a measure which implies fewer costs for the social system as well as individuals.
  • Government expenditures are going to increase dramatically due to age-related causes. Governments will also have to begin inter-temporal budgeting of natural resources and oil, and should mark this as a security concern.
age related government expenditures

Photo: Credit Suisse

  • Governments need to promote new or different securities for savers to use, perhaps even through the issuance of longevity bonds that protect holders against inflation and time. Initial attempts to construct such bonds have been unsuccessful, but more detailed study of how these financial instruments would work could increase this the attractiveness of this product.
old age dependency ratios

Photo: Credit Suisse

Nonetheless, Credit Suisse analysts conclude that longevity is a net positive for the finance world:

It is a positive for the Financial Services industry as there will be a greater need for financial products over the longer term, but of newer types and kinds—newer asset classes, newer investment strategies and longer-dated bonds/securities will need to be developed. This will require participation and collaboration across both the public and private sectors to have a positive effect for all longer-lived citizens.

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