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Measuring the Impact of Longevity Risk on Pension Systems: The Case of Italy

28 citations0/0 files storedNorth American Actuarial Journal

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Insurance, Mortality, Demography, Risk Management Financial Literacy, Pension, Retirement Analysis Economic Policies and Impacts

Abstract

This article estimates the impact of longevity risk on pension systems by combining the prediction based on a Lee-Carter mortality model with the projected pension payments for different cohorts of retirees. We measure longevity risk by the difference between the upper bound of the total old-age pension expense and its mean estimate. This difference is as high as 4% of annual GDP over the period 2040–2050. The impact of longevity risk is sizeably reduced, but not fully eliminated, by the introduction of indexation of retirement age to expected life at retirement. Our evidence speaks in favor of a market for longevity risk and calls for a closer scrutiny of the potential redistributive effects of longevity risk.

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References

1992Modeling and Forecasting U. S. Mortality 1989Dynamic Fiscal Policy.2004Insurance: Mathematics and Economics 2006A Two‐Factor Model for Stochastic Mortality with Parameter Uncertainty: Theory and Calibration 2006A cohort-based extension to the Lee–Carter model for mortality reduction factors 1976The Phillips curve and labor markets 1999Generational Accounting around the World 1999Projected U.S. Demographics and Social Security

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2016Inference pitfalls in Lee–Carter model for forecasting mortality 2019Statistical Inference for Lee-Carter Mortality Model and Corresponding Forecasts 2015MODELING LONGEVITY RISK WITH GENERALIZED DYNAMIC FACTOR MODELS AND VINE-COPULAE

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