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Measurement and Impact of Longevity Risk in Portfolios of Pension Annuity: The Case in Sub Saharan Africa

Author

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  • Samuel Asante Gyamerah

    (Department of Statistics and Actuarial Science, Kwame Nkrumah University of Science and Technology, Private Mail Bag, Kumasi P.O. Box KS 9265, Ghana
    Laboratory for Interdisciplinary Statistical Analysis–Kwame Nkrumah University of Science and Technology (KNUST-LISA), Private Mail Bag, Kumasi P.O. Box KS 9265, Ghana)

  • Janet Arthur

    (Department of Statistics and Actuarial Science, Kwame Nkrumah University of Science and Technology, Private Mail Bag, Kumasi P.O. Box KS 9265, Ghana)

  • Saviour Worlanyo Akuamoah

    (Department of Mathematics and Statistics, Ho Technical University, Ho P.O. Box HP 217, Ghana)

  • Yethu Sithole

    (Department of Mathematical Sciences, University of South Africa, Preller Street, Muckleneuk Ridge, Pretoria 0001, South Africa)

Abstract

Longevity is without a doubt on the rise throughout the world due to advances in technology and health. Since 1960, Ghana’s average annual mortality improvement has been about 1.236%. This poses serious longevity risks to numerous longevity-bearing assets and liabilities. As a result, this research investigates the effect of mortality improvement on pension annuities related to a particular pension scheme in Ghana. Different stochastic mortality models (Lee–Carter, Renshaw–Haberman, Cairns–Blake–Dowd, and Quadratic Cairns–Blake–Dowd) are used to forecast mortality improvements between 2021 and 2030. The results from accuracy metrics indicate that the quadratic Cairns–Blake–Dowd model exhibits the best fit to the mortality data. The findings from the study demonstrate that mortality for increasing ages within the retirement period was declining, with increasing improvement associated with increasing ages. Furthermore, the forecasts were used to estimate the associated single benefit annuity for a GHS 1 per annum payment to pensioners, and it was discovered that the annuity value expected to be paid to such people was not significantly different regardless of the pensioner’s current age.

Suggested Citation

  • Samuel Asante Gyamerah & Janet Arthur & Saviour Worlanyo Akuamoah & Yethu Sithole, 2023. "Measurement and Impact of Longevity Risk in Portfolios of Pension Annuity: The Case in Sub Saharan Africa," FinTech, MDPI, vol. 2(1), pages 1-20, January.
    • Handle: RePEc:gam:jfinte:v:2:y:2023:i:1:p:4-67:d:1034833
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    References listed on IDEAS

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