We use a case study of a pension plan wishing to hedge the longevity risk in its pension liabilities at a future date. The plan has the choice of using either a customized hedge or an index hedge, with the degree of hedge effectiveness being closely related to the correlation between the value...

Governments are among the few agencies that can help the private sector hedge against the increasing problem of aggregate longevity risk. David Blake, Tom Boardman, Andrew Cairns and Kevin Dowd from the Pensions Institute at Cass Business School urge governments to issue longevity bonds as soon...

This study sets out a framework to evaluate the goodness of fit of stochastic mortality models and applies it to six different models estimated using English & Welsh male mortality data. The methodology exploits the structure of each model to obtain various residual series that are predicted to...

This study sets out a backtesting framework applicable to the multi-period-ahead forecasts from stochastic mortality models and uses it to evaluate the forecasting performance of six different stochastic mortality models applied to English & Welsh male mortality data. The models considered are:...

The huge economic significance of longevity risk for corporations, governments and individuals is beginning to be recognized and quantified. The traditional insurance route for managing this risk is capacity constrained, leaving the capital markets to provide an effective solution. We consider...

This article shows how mortality models that involve age effects can be fitted to ages beyond the sample range using projections of age effects as replacements for age effects that might not be in the sample. This ‘projected age effect' approach allows insurers to use age-effect mortality...

Many people delay joining a pension plan until well into their working lives. We use a stochastic simulation model to show the cost of this delay in terms of the higher pension contributions that must eventually be paid to ensure an adequate retirement income. We find the levels of contributions...

Most defined contribution (DC) pension plans give their members a degree of choice over the investment strategy for their contributions. Many plans also offer a 'default' fund for members unable or unwilling to choose their own investment strategy. We analyse the range of default funds offered...

This paper updates Living with Mortality published in 2006. It describes how the longevity risk transfer market has developed over the intervening period, and, in particular, how insurance-based solutions – buy-outs, buy-ins and longevity insurance – have triumphed over capital markets...

This article uses the framework of designing a commercial aircraft to illustrate how a personal defined-contribution (DC) pension plan should be designed if it is to achieve its objective of delivering an adequate and secure retirement pension. The article's suggestions are based on similarities...