Backtesting the pension fund specific expected experience mortality

Research has shown that the mortality of a given group can significantly differ from the mortality of the country’s population. This difference in mortality, which can be due to factors such as socioeconomic inequality, is known as experience mortality. Pension funds have developed models to estimate the fund specific experience mortality, which is used to estimate how much pension provision can be released due to deaths among participants. Naturally, the accuracy of a model cannot be guaranteed until the outcomes predicted by the model are compared to existing data, i.e. until the outcomes are backtested. In this thesis, the influence of the participants’ accrued pension rights on mortality is discussed and a backtesting procedure, which applies Pearson distribution theory, is proposed. Regression results show that pension rights are heavily correlated with mortality, although the effect appears to die out with age. These results signify the importance of accounting for experience mortality when computing the expected pension release; backtest results show that, for a given pension fund, taking mortality rates within the pension fund as equal to the mortality rates of the Dutch population results in misestimation of the pension release.