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Longevity projections will raise scheme liabilities |
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Conservative longevity projections may push up scheme liabilities
The use of conservative longevity assumptions will increase the liability of pensions schemes.
The Pension Regulator is pushing to use more conservative longevity
assumptions which will have the effect of increasing liabilities for
the majority of schemes by up to 8 per cent and for one-third up to 20
per cent.
There are three ways that managers of
pensions schemes could manage their risk, either by using bulk annuity, a longevity annuity,
or through liability-driven investment strategies.
The insurance route hedges the full exposure that the
pension plans for. The buy-out route takes the full longevity risk off
the books of planned sponsors at a relative high price, it is around 20
per cent of the value of the liabilities.
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