Werkgroep Systematisch langlevenrisico/habit formation

Systematisch Langlevenrisico
Anja De Waegenaere (Tilburg University)
A comparison of several mechanisms that a pension fund can use to adjust accrued rights to compensate for actuarial gains/losses that arise at the fund level. If more participants survive than expected, or if the “best-estimate” future survival rates are adjusted upwards, the accrued rights of the participants are adjusted downwards so as to keep the best-estimate value of the liabilities at fund level equal. One way to do this would be to adjust each participant’s accrued rights with the same percentage, which implies that the mortality risk is shared over all participants. In addition to this rule, we investigate several alternative adjustment rules that differ in the extent to which mortality risk is shared over or within cohorts. We consider in particular adjustment rules in which young cohorts only share risk with individuals of the same cohort, while old participants not only share risk with participants of their own cohort, but also with participants of other (old) cohorts. For each adjustment rule, we investigate which cohorts benefit/lose from the rule, and we determine the “return on mortality” for an individual participant. This return is defined as the relative change in the value of his/her annuity due to: (i) survival or decease of the participant, (ii) potential adjustments to best-estimate future survival rates, and, (iii) the adjustment of his/her accrued rights.