Keeping it simple — postscript

(Jan 17, 2011)

Last week we looked at how to compare mortality-improvement bases for pensions and annuities.  However, for many years some pension schemes in the UK did not have explicit mortality-improvement projections.  Instead, they allowed for mortality improvements by making a deduction from the valuation discount rate.  Reading some scheme reports from around 2005, it would appear to have been relatively common to use a deduction of 0.25% per annum. How strong a basis is a 0.25% discount-rate offset compared with more explicit projections of improvements?

Previously we looked at comparing two mortality-improvement bases by using an equivalent annuity to express the bases in a simple, standardised way.  We…

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Tags: mortality improvements, mortality projections, equivalent annuity

Keeping it simple

(Jan 14, 2011)

Which mortality-improvement basis is tougher - a medium-cohort projection with a 2% minimum value, or a long-cohort projection with a 1% minimum? Unless you are an actuary who works with such things, you have little chance of answering this question.  This is unsatisfactory in an age of transparency.  There are many non-actuaries - regulators, pension-scheme trustees and equity analysts among them - who need to be able to make this kind of judgment.  The advent of the CMI's new projection model means that there will be yet more variety in projection bases.

One solution is to quote specimen life expectancies or annuity values. However, different bases have different impacts at varying ages, as shown in Table…

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Tags: mortality improvements, mortality projections, equivalent annuity

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