Linking annuity benefits to the longevity experience: alternative solutions

Olivieri, Annamaria; Pitacco, Ermanno

doi:10.1017/s1748499519000137

Cited by 11 publications

(4 citation statements)

References 35 publications

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“…Indeed, the existence of systematic longevity risk in one generation will increase the risk faced by later generations, as they face a wider range of possible income values compared to earlier generations as the financial impact of paying out too much or too little income to a generation is compounded by returns over time. Olivieri & Pitacco (2020) discuss ways of dealing with systemic longevity risk in the context of life annuities.…”

Section: Discussionmentioning

confidence: 99%

An attribution analysis of investment risk sharing in collective defined contribution schemes

Barajas-Paz

Donnelly

2023

Ann. actuar. sci.

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A quantification of the financial implications of the design of a funded, collective defined contribution (CDC) pension scheme is presented and illustrated. It is done through an attribution analysis, which allows the importance of various elements of CDC scheme design to be determined. The model of a CDC scheme analysed is based lightly on the first CDC scheme set to be approved in the UK. In the CDC scheme analysed, contributions are fixed and the initial benefit accrued by each contribution is fixed. Once accrued, benefits are subsequently adjusted annually in response to changes in assumptions and returns. An attribution of the benefit payments shows that this design gives higher benefits to the first generations and lower benefits to the last generations, for a scheme which starts with no members. The contributions paid also affect the balance of benefits paid between generations. Too high a contribution is to the advantage of the first generations. Too low a contribution is in the interests of the later generations. The conclusion, within the simple model considered, is that a constant benefit accrual is an important design choice. Its financial consequences across all generations should be carefully analysed, if it is intended to be implemented. Additionally, contributions should be reviewed regularly in such a CDC scheme, to ensure that cross-subsidies are not borne excessively by particular generations.

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Section: Discussionmentioning

confidence: 99%

An attribution analysis of investment risk sharing in collective defined contribution schemes

Barajas-Paz

Donnelly

2023

Ann. actuar. sci.

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“…We follow the general linking structure described in (Olivieri and Pitacco 2020a), to which we refer for a detailed discussion about the rationale and actuarial technique backing the annuity benefit adjustment. We consider the following two alternative mortality/ longevity-linked annuity benefits:…”

Section: Mortality/longevity-linked Annuity Benefitsmentioning

confidence: 99%

“…In contrast, some forms of guarantees should be kept in mortality/longevity-linked annuities. A general description of linking coefficients, including as particular cases most of the solutions analysed in the literature both for insured and self-insured arrangements, is developed by (Olivieri and Pitacco 2020a).…”

Section: Introductionmentioning

confidence: 99%

Designing Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario

Olivieri

2021

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We consider annuity designs in which the benefit amount is allowed to fluctuate (up or down), based on a given mortality/longevity experience. This way, guarantees are relaxed in respect of traditional annuity arrangements. On the other hand, while the annuitant is exposed to the risk of a future reduction of the benefit amount because of higher longevity, he/she can immediately take advantage of a lower premium loading, as well as of a future increase of the benefit amount in the case of higher mortality. Flexibility in the annuity design could be welcomed by individuals, as the conservative features of traditional products partly explain their lack of attractiveness in most markets. To further contribute to the flexibility of the product, we suggest a pricing structure based on periodic fees applied to the policy fund, instead of the usual upfront loading at issue. Periodic fees are more suitable to support a revision of the arrangement after issue, which is currently not allowed in traditional annuity products. We show that periodic fees can be introduced by identifying a discount factor to be used for pricing and reserving. We assume stochastic mortality, and we compare alternative mortality/longevity linking solutions, by assessing the periodic fees and other quantities.

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“… 2 Investment guarantees may be in the form of a “technical interest rate” implicit within the actuarial structure of the product or explicit as a minimum annual return [ 52 ]. Blake et al [ 4 ] propose participating annuities which pay survivor credits to annuitants according to the mortality experience of a given pool of annuitants.…”

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confidence: 99%

Pricing participating longevity-linked life annuities: a Bayesian Model Ensemble approach

Bravo

2021

Eur. Actuar. J.

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Participating longevity-linked life annuities (PLLA) in which benefits are updated periodically based on the observed survival experience of a given underlying population and the performance of the investment portfolio are an alternative insurance product offering consumers individual longevity risk protection and the chance to profit from the upside potential of financial market developments. This paper builds on previous research on the design and pricing of PLLAs by considering a Bayesian Model Ensemble of single population generalised age-period-cohort stochastic mortality models in which individual forecasts are weighted by their posterior model probabilities. For the valuation, we adopt a longevity option decomposition approach with risk-neutral simulation and investigate the sensitivity of results to changes in the asset allocation by considering a more aggressive lifecycle strategy. We calibrate models using Taiwanese (mortality, yield curve and stock market) data from 1980 to 2019. The empirical results provide significant valuation and policy insights for the provision of a cost effective and efficient risk pooling mechanism that addresses the individual uncertainty of death, while providing appropriate retirement income and longevity protection.

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Linking annuity benefits to the longevity experience: alternative solutions

Cited by 11 publications

References 35 publications

An attribution analysis of investment risk sharing in collective defined contribution schemes

An attribution analysis of investment risk sharing in collective defined contribution schemes

Designing Annuities with Flexibility Opportunities in an Uncertain Mortality Scenario

Pricing participating longevity-linked life annuities: a Bayesian Model Ensemble approach

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