Netspar Brief 13 – Shared Interests for Longer: On Solidarity and Sharing Longevity Risk
Slight fluctuations in the projections regarding life expectancy can have a big impact on pensions. This “macro longevity risk” is currently shared uniformly amongst everyone through the funding ratio. That can be disadvantageous for older workers, in particular, since they are unable to compensate for fluctuations in pension income by, for instance, working longer. In the thirteenth Netspar Brief, Anja De Waegenaere and Michel Vellekoop analyze an alternative distribution rule in which the degree of risk can vary per age cohort. This entails dividing participants into three groups, with the active members in a fund assuming the risk for the oldest members and younger retirees assuming only their own risk. The rule can prevent undesirable fluctuations for the very old, while limiting the effects for younger cohorts in many cases.
Read the English summary here.