On the Modeling and Forecasting of Socioeconomic Mortality Differentials: An Application to Deprivation and Mortality in England

Abstract

This is the submitted version of the paper.This version of the publication may differ from the final published version. Permanent repository link AbstractIn any country, mortality rates and indices such as life expectancy usually differ across subpopulations, for example, defined by gender, geographic area or socio-economic variables (e.g. occupation, level of education, income). These differentials, and in particular those related to socio-economic circumstances, pose important challenges for the design of public policies for tackling social inequalities, as well as for the design of pension systems and the management of longevity risk in pension funds and annuity portfolios. We discuss the suitability for the modelling and forecasting of socio-economic differences in mortality of several multiple population extensions of the Lee-Carter model, including a newly introduced relative model based on the modelling of the mortality in socio-economic subpopulations alongside the mortality of a reference population. Using England mortality data for socioeconomic subpopulations defined using a deprivation index, we show that this new relative model exhibits the best results in terms of goodness of fit and ex-post forecasting performance. We then use this model to derive projections of deprivation specific mortality rates and life expectancies at pensioner ages and analyse the impact of socio-economic differences in mortality on the valuation of annuities.

A Comparative Study of Two-Population Models for the Assessment of Basis Risk in Longevity Hedges

“…It is also worth noticing that none of the datasets shows any very marked increasing or decreasing time trend in the mortality ratios, albeit there is a slight upward trend in the "Extreme Deprived" dataset. This is consistent with the slower mortality improvements for the two most deprived quintiles of England reported by Villegas and Haberman (2014).…”

“…5 A detailed analysis of the mortality data used in this paper can be seen in Villegas and Haberman (2014) or in Lu et al (2014). For further information on the Index of Multiple Deprivation see Noble et al (2007).…”

“…Recently, Yang et al (2016) have extended the Poisson Augmented Common Factor to allow for possible cohort effects. Villegas and Haberman (2014) have considered a similar cohort variant of the Augmented Common Factor for the purpose of studying socio-economic differences in mortality.…”

How Do Unisex Life Care Annuities Embedded in a Pay-As-You-Go Retirement System Affect Gender Redistribution?

“…On this subject, interested readers can consult the papers by Brown & McDaid (2002), Villegas & Haberman (2014) and Ayuso et al (2016), for example. 12 As noted earlier, this lies outside the scope of this paper.…”

Addressing Longevity’ Heterogeneity in Pension Scheme Design

“…This results in a revised pension formula that is linear in contribution years but concave in individual point value(s), producing a replacement rate curvature similar to that of the United States and also close to that of the Swiss basic pillar. 6 For a discussion of the suitability of the modelling and forecasting of socioeconomic differences in mortality of several multiple population extensions of the Lee-Carter model, and the application of a newly introduced relative model based on modelling mortality in socioeconomic subpopulations alongside mortality of a reference population, see Villegas and Haberman (2014).…”