Longevity risk explained
In defined benefit pension schemes, longevity risk is the risk that members live for longer than is currently expected. That results in pensions being paid for longer than expected, thus costing schemes more money.
Recent mortality trends have been volatile, and as a result future longevity expectations have proved increasingly difficult to predict. Trustees and sponsors have therefore started to explore new and innovative solutions for managing longevity and mortality risk, whatever the size of their scheme.
Longevity risk is likely to be one of the most significant risks for most schemes and has become increasingly important in assessing the overall risk profile of schemes as discount rates have fallen and liabilities have increased.
It is no surprise therefore, that schemes are increasingly taking action to manage longevity risk through risk settlement actions, with bulk annuity and longevity swap transactions covering over £25bn of trust-based pension scheme liabilities in 2018.
Find out more...
In our recent webinar Aon experts discussed:
- Mortality data – We review the recent mortality data and consider its implications for assumption setting and risk settlement
- Getting a handle on longevity risk – Why is longevity risk so often understated by experts and non-experts alike? We take a look at what the data says – including analysing companies’ own reporting – and consider how best to understand longevity risk
- Is the longevity market reaching its capacity? – Longevity swap volumes have fallen slightly in recent years, but there is a huge pipeline of swap transactions and the reinsurers – which is where much of the longevity risk ultimately ends up – are hugely resource-constrained. We review how to get insurers to prioritise your transaction and consider the implications for future market capacity
Listen to the webinar here.