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Longevity Risk and Private Pensions

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  • Pablo Antolín

Abstract

This paper examines how uncertainty regarding future mortality and life expectancy outcomes, i.e. longevity risk, affects employer-provided defined benefit (DB) private pension plans liabilities. The paper argues that to assess uncertainty and associated risks adequately, a stochastic approach to model mortality and life expectancy is preferable because it permits to attach probabilities to different forecasts. In this regard, the paper provides the results of estimating the Lee-Carter model for several OECD countries. Furthermore, it conveys the uncertainty surrounding future mortality and... Risque de longévité et pensions privées Cet article examine l'impact de l’incertitude concernant l'évolution de la mortalité et de l’espérance de vie (risque de longévité) sur le passif des fonds de pensions privés à prestations définies. Cet article soutient l'argument que, pour évaluer de manière adéquate cette incertitude et les risques associés, il est préférable de recourir à une approche stochastique pour l'établissement de projections de mortalité et d'espérance de vie afin de pouvoir associer des probabilités à des prévisions différentes. A ce sujet, le présent article présente les résultats de l'application simulée du modèle Lee-Carter à plusieurs...

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File URL: http://dx.doi.org/10.1787/261260613084
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Working Papers on Insurance and Private Pensions with number 3.

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Date of creation: Jan 2007
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Handle: RePEc:oec:dafaab:3-en

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Keywords: demographic trends and forecasts; retirement; private pensions; life tables; longevity risk; Lee-Carter models; Monte Carlo methods; defined benefit pension plans.; mortality and life expectancy; histograms; histogrammes; plans de pensions à prestation définie; simulation Monte Carlo; prévisions démographiques; pensions privées; mortalité et l'espérance de vie; tableaux de survie; risque de longévité; modèle Lee-Carter;

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Cited by:
  1. Ashby H. B. Monk, 2009. "Pension Buyouts: What Can We Learn From The UK Experience?," Working Papers, Center for Retirement Research at Boston College wp2009-19, Center for Retirement Research, revised Sep 2009.
  2. John Kiff & Michael Kisser & Mauricio Soto & Stefan E. Oppers, 2012. "The Impact of Longevity Improvements on U.S. Corporate Defined Benefit Pension Plans," IMF Working Papers 12/170, International Monetary Fund.
  3. Ferro, Gustavo, 2008. "On annuities: an overview of the issues," MPRA Paper 20209, University Library of Munich, Germany, revised Oct 2009.
  4. Joelle H. Fong & John Piggott & Michael Sherris, 2012. "Public Sector Pension Funds in Australia: Longevity Selection and Liabilities," Working Papers 201217, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
  5. Roy, Amlan, 2012. "Innovative Approaches to Managing Longevity Risk in Asia: Lessons from the West," ADBI Working Papers 353, Asian Development Bank Institute.
  6. Ferro, Gustavo, 2008. "Un impulso al mercado de rentas vitalicias en España
    [Promoting the annuities market in Spain]
    ," MPRA Paper 20211, University Library of Munich, Germany, revised Jul 2008.
  7. Yang, Sharon S. & Yue, Jack C. & Huang, Hong-Chih, 2010. "Modeling longevity risks using a principal component approach: A comparison with existing stochastic mortality models," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 254-270, February.

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