On the management of retirement age indexed to life expectancy: a scenario analysis of the Italian longevity experience. Issue 3 (29th June 2020)

• Record Type: Journal Article
• Authors: Coppola, Mariarosaria; Russolillo, Maria; Simone, Rosaria
• Is Part Of: Journal of risk finance. Volume 21:Issue 3(2020)
• Page Start: 217
• Page End: 231
• Publication Date: 2020-06-29
• Subjects: Life expectancy -- Longevity risk -- Gender gap -- Indexed retirement system -- Model risk -- Pension cash flow -- Indexed pension system; C02 -- G22 -- J11; Risk management -- Periodicals; Risk (Insurance) -- Periodicals; Risk assessment -- Periodicals; 658.155
• DOI: 10.1108/JRF-01-2020-0012
• Languages: English
• ISSNs: 1526-5943

Abstract

Abstract : Purpose: This paper aims to measure the financial impact on social security system of a recently proposed indexation mechanism for retirement age by considering the Italian longevity experience. The analysis is motivated by the progressive increase in life expectancy at advanced age, which is rapidly bringing to the fore noticeable socio-economic consequences in most industrialized countries. Among those, the impact on National Social Security systems is particularly relevant if people live longer than expected; this will lead to greater financial exposure for pension providers. Design/methodology/approach: Referring to the Italian population for illustrative purposes, the authors contemplate different scenarios for mortality projection methods and for the implementation of pension age shift while accounting for gender and cohort gaps and model risk. Synthetic indicators to measure the impact of the indexation mechanism on social security system are introduced on the basis of pension cash flows. Findings: An indexation policy that manages gender gap while adjusting retirement age for varying life expectancy is proposed. As a result, sustainability of public retirement expenditure is improved. Originality/value: The paper is a concise scenario analysis of the reduction of costs and risks that pension providers would have if the system resorted to link retirement age to life expectancy. The ideas fostered by the paper follow a recent proposal of the Authors on a flexible retirement scheme that deals with model risk for mortality projection and accounts for gender gap in mortality rates.