Tackling longevity risk by means of financial compensation
The remarkable increases in life expectancy observed over the last decades have posed a major challenge to pension funds and annuity providers because of the related systematic longevity risk. This article proposes a variable payout life annuity where benefits have to follow the observed mortality a...
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| Veröffentlicht in: | Soft computing (Berlin, Germany) Germany), 2020-06, Vol.24 (12), p.8583-8597 |
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| creator | Di Palo, Cinzia |
| description | The remarkable increases in life expectancy observed over the last decades have posed a major challenge to pension funds and annuity providers because of the related systematic longevity risk. This article proposes a variable payout life annuity where benefits have to follow the observed mortality and the interest rates obtained. This scheme is effective and efficient for annuity providers, who always have a fund that matches exactly the undertaken commitments to annuitants. On the other hand, potential reductions in the benefit payments can be felt by annuitants more bearable than those that include a safety loading. Specifically, the concept of observed survival probabilities is introduced and applied to: (a) translate a demographic change into the related financial adjustment; (b) decompose a demographic change into two effects, one stemming from the survival probability observations and the other from life table updates; (c) show that the financial compensation mechanism should run for single cohorts to avoid creating inequalities for older and smaller cohorts. |
| doi_str_mv | 10.1007/s00500-019-04433-1 |
| format | Article |
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| ispartof | Soft computing (Berlin, Germany), 2020-06, Vol.24 (12), p.8583-8597 |
| issn | 1432-7643 1433-7479 |
| language | eng |
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| source | Springer Nature - Complete Springer Journals; ProQuest Central |
| subjects | Annuities Artificial Intelligence Compensation Computational Intelligence Control Demographics Engineering Females Focus Insurance premiums Interest rates Life expectancy Longevity Males Mathematical Logic and Foundations Mechatronics Mortality Pension funds Robotics Survival |
| title | Tackling longevity risk by means of financial compensation |
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