Longevity risk—Its financial impact on pensions
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Date
2022
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Scientific African
Abstract
We study the financial impact of longevity risk on defined benefit (DB) pension plan liabilities using the 2010 Ghana population census, and the Lee-Carter model. We compare the
usual Lee-Carter model to an extended version. While we observe that Ghana’s mortality
has decreased, our results show that longevity risk raises the cost of liability. We propose
that defined benefit scheme trustees and fund managers, assess their funds and act on the
assets available to them in a Liability-Driven Investment (LDI) Strategy tailored to the dynamics of their scheme - since there is no single best method in LDI strategy. This study
may help policymakers or practitioners in their efforts to mitigate the effects of longevity
risk.
Description
Research Article
Keywords
Lee-Carter model, Singular value decomposition (SVD), Liability driven strategy (LDI), Defined benefit (DB), Stochastic process, Forecast