Financial Market Trends

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ISSN: 
1609-6886 (online)
ISSN: 
0378-651X (print)
http://dx.doi.org/10.1787/16096886
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OECD’s twice-yearly journal providing timely analyses and statistics on financial matters of topical interest and longer-term developments in specific financial sectors. Each issue provides a brief update of trends and prospects in the international and major domestic financial markets along with articles covering such topics as structural and regulatory developments in OECD financial systems, trends in foreign direct investment, trends in privatization, and financial sector statistics covering areas such as bank profitability, insurance, and institutional investors.

Periodically, a small number of articles within one field of financial sector developments – constituting the so-called special focus for the particular issue – may be included.

Article
 

Longevity Risk and Private Pensions You do not have access to this content

English
 
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Author(s):
Pablo Antolin
11 July 2007
Pages:
27
Bibliographic information
No.:
6,
Volume:
2007,
Issue:
1
Pages:
107–128
http://dx.doi.org/10.1787/fmt-v2007-art6-en

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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. For this purpose, it examines the different approaches that private pension plans follow in practice when incorporating longevity risk in their actuarial calculations. Unfortunately, most pension funds do not fully account for future improvements in mortality and life expectancy. The paper then presents estimations of the range of increase in the net present value of annuity payments for a theoretical DB pension fund. Finally, the paper discusses several policy issues on how to deal with longevity risk emphasising the need for a common approach. In this regard, it argues, following Antolin (2007), 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.
 
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