Impact of longevity risk on pension systems
Date
2021
Authors
Nyambura, Malvin Gitau
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
According to the "2019 Revision of World Population Prospects" prepared by
the Population Division of the Department of Economic and Social Affairs of
the United Nations Secretariat, life expectancy has risen from 60.26 in 201 0
to 66.70 in 2019. This increase in life expectancy is attributed to improved
healthcare facilities, proper education, diversification in agricultural
production and an increase in living standards.
The improvement in life expectancy is positive news but it results in
increased longevity risk. Longevity risk is the risk that individuals will have
longer lifetimes than expected. In pensions, this is the risk attached to the
increasing life expectancy of pensioners and policyholders, which will result
in higher pay-out ratios than expected for many pension funds. If gains in life
expectancy could be forecasted and factored in retirement planning, then the
effect of longevity risk could be minimal and thus negligible but improvement
in life expectancy and mortality are uncertain. Thus, longevity risk is related
to the uncertainty surrounding future mortality and life expectancy.
Description
Submitted in partial fulfillment of the requirements for the Degree of Bachelor of Business Science in Actuarial Science at Strathmore University