The Impact of longevity risk in defined benefit private pension funds

Abstract

Retirement benefits should be able to last until the retiree dies. With improvements in fields like technology and medicine, there has been a reduction in mortality rates and an increase in life expectancy. Defined benefit pension plans are one of the stakeholders of longevity risk that will suffer great losses if they ignore longevity risk. This study will use the Lee Carter model to forecast mortality rates and show the increasing trend of life expectancy and how this affects the defined benefit pension funds. The main purpose of this paper is to determine how uncertainty associated with future mortality and life expectancy outcomes would affect the liabilities of a defined benefit pension plan. Finally, this paper will measure longevity risk by comparing the actuarial present values of annuities in Israel over the years and show the trend in the actuarial present values