Table of Contents

  • This publication on mortality assumptions and longevity risk is part of the research and policy program of work of the OECD’s Insurance and Private Pension Committee (IPPC) and, in particular, its Working Party on Private Pensions (WPPP). The OECD WPPP is an international body that brings together policymakers, regulators and the private sector of almost 40 countries to discuss issues related to the operation and regulation of funded retirement income systems.

  • This publication presents the results of the OECD project on mortality assumptions and longevity risk. The project looks first at the mortality tables typically used by pension funds and annuity providers to determine the amount of funding needed to meet future expected pension and annuity payments. These can be specific tables required by the regulatory framework or those most commonly used by practitioners. The study then assesses whether these standard mortality tables account for future improvements in mortality and life expectancy and looks at how those future improvements are included. In general annuity providers are found to account more often for mortality improvements in their assumptions than are pension funds. The analysis herein also provides details regarding the standard mortality tables and assumptions used in 15 countries.

  • This chapter examines the mortality tables that pension funds and annuity providers use for valuing pension and annuity liabilities. The mortality tables commonly used comprise assumptions on mortality rates and future improvements that are the basis for accounting for the length of time pension funds and annuity providers are expected to make payments. The risk that future mortality improvements and life expectancy outcomes prove to be different than assumed in provisions is the longevity risk that pension funds and annuity providers may be exposed to. This would mean that they may have to make payments for longer than provisioned for.

  • This chapter provides general details on the mortality tables used in each country. After briefly describing the pension systems, the chapter presents the regulatory and market practice mortality tables used in each country by pension funds and annuity providers. These mortality tables are the basis on which the longevity risk is assessed in the following chapters.

  • The analysis in this chapter provides an overview of the trends in life expectancy for the countries considered. It also examines whether the standard mortality tables used by pension funds and annuity providers to value their liabilities could potentially expose them to an expected shortfall in provisions to meet future pension and annuity payments. Historical trends in the population’s mortality drive the expectations about what the improvements in life expectancy will be in the future, and if assumptions are not in line with these expectations, a shortfall in provisions set aside to fund future payments is more likely to result.

  • This chapter presents the models used to project future improvement in mortality and life expectancy. The mortality projection models implemented are widely used and recognized, however each has its own advantages and weaknesses which must be considered when drawing conclusions from their results. The analysis here first covers the details of some of the mathematical concepts useful for understanding the measurement and modelling of mortality, and then goes into details regarding the models themselves. Finally the inputs used to calibrate the models are discussed, along with justification of the choices made and their limitations.

  • This chapter assesses the potential longevity risk implicit in the standard mortality tables used by pension funds and annuity providers in each country. It provides a detailed analysis on which the conclusions presented in regarding the potential shortfall of the standard mortality tables are based. Results of the mortality projection model outputs are compared to historical population experience as well as to the life expectancy and annuity values given by the standard mortality tables. The potential shortfall of provisions from using each standard mortality table is calculated based on each of the mortality models and across a range of ages. Where available, the potential impact of socio-economic differences on the annuity value is also shown.

  • This chapter discusses how pension funds and annuity providers can manage longevity risk and how the regulatory framework can support this effort. Regulators should enable and encourage the management of longevity risk as they have an interest to ensure that pension funds and annuity providers will be able to meet future payment obligations to retirees.The first step in managing longevity risk is to ensure that pension funds use appropriate and up to date mortality tables that incorporate expected future improvements in mortality and life expectancy and are based on the relevant populations. For the unexpected future improvements in mortality and life expectancy, regulators may want to facilitate capital market solutions to hedge or mitigate this risk using standardised index based longevity hedges that would promote transparent and liquid secondary markets. Governments could also provide a reliable longevity index and mortality projections. Finally governments could assist by establishing capital and funding requirements as well as accounting standards that ensure appropriate valuations and reflect the risks faced.