Managing Longevity Risk by Implementing Sustainable Full Retirement Age Policies. Issue 4 (9th June 2016)

• Record Type: Journal Article
• Authors: Stevens, Ralph
• Is Part Of: Journal of risk and insurance. Volume 84:Issue 4(2017)
• Page Start: 1203
• Page End: 1230
• Publication Date: 2016-06-09
• Subjects: Insurance -- United States -- Periodicals; 368.97305
• DOI: 10.1111/jori.12153
• Languages: English
• ISSNs: 0022-4367

Abstract

Abstract: In this article, we investigate the effect of five policies to link the retirement age to (forecasted) survival probabilities. We investigate the effect of these policies on the distribution of the (future) full retirement age and on longevity risk in the discounted future payments. Our investigated policies effectively hedge longevity risk, but do lead to substantial uncertainty in the retirement age and the expected number of years in retirement. We find that policies based on present values lead to a higher annuity factor than policies based on expected remaining years in retirement. Our results can explain the differences between the proposed automatic rule to adjust the full retirement age in the United Kingdom (defined contribution pension schemes) and the Netherlands (defined benefit pension schemes).