The move towards riskier pensions: The importance of mortality

Research output: Working paperResearch

Standard

The move towards riskier pensions: The importance of mortality. / Balter, Anne G.; Kallestrup-Lamb, Malene; Rangvid, Jesper.

Aarhus : Institut for Økonomi, Aarhus Universitet, 2019.

Research output: Working paperResearch

Harvard

Balter, AG, Kallestrup-Lamb, M & Rangvid, J 2019 'The move towards riskier pensions: The importance of mortality' Institut for Økonomi, Aarhus Universitet, Aarhus.

APA

Balter, A. G., Kallestrup-Lamb, M., & Rangvid, J. (2019). The move towards riskier pensions: The importance of mortality. Institut for Økonomi, Aarhus Universitet. CREATES Research Papers, No. 2019-22

CBE

Balter AG, Kallestrup-Lamb M, Rangvid J. 2019. The move towards riskier pensions: The importance of mortality. Aarhus: Institut for Økonomi, Aarhus Universitet.

MLA

Balter, Anne G., Malene Kallestrup-Lamb and Jesper Rangvid The move towards riskier pensions: The importance of mortality. Aarhus: Institut for Økonomi, Aarhus Universitet. (CREATES Research Papers; Journal number 2019-22). 2019., 31 p.

Vancouver

Balter AG, Kallestrup-Lamb M, Rangvid J. The move towards riskier pensions: The importance of mortality. Aarhus: Institut for Økonomi, Aarhus Universitet. 2019 Nov 27.

Author

Balter, Anne G. ; Kallestrup-Lamb, Malene ; Rangvid, Jesper. / The move towards riskier pensions: The importance of mortality. Aarhus : Institut for Økonomi, Aarhus Universitet, 2019. (CREATES Research Papers; No. 2019-22).

Bibtex

@techreport{8b9f4ed1462b45198bb2b2dfb68b5add,
title = "The move towards riskier pensions: The importance of mortality",
abstract = "This paper models the impact of unanticipated changes in forecasted life expectancies on guaranteed and unguaranteed pension products. We study a unique data set containing individuals offered the opportunity to substitute a guaranteed pension product with relatively low levels of risk to an unguaranteed product with a higher degree of financial and longevity risk. The complexity of the products and the increase in the level of financial literacy required by the individual to make such a decision motivate the need to properly model the most important drivers that characterize the differences between guaranteed and unguaranteed pension products. This is done within the standard Merton, Black and Scholes framework and we find a clear tradeoff between financial risk and longevity risk in terms of their effect on future pension payments. We find that unguaranteed pension products allow for more financial risk-taking and thus higher expected returns. However, unexpected longevity shocks can reduce pension payments in unguaranteed pension products to a lower level relative to guaranteed products.",
keywords = "Macro longevity risk, Variable annuities, Guarantee, Unguarantee",
author = "Balter, {Anne G.} and Malene Kallestrup-Lamb and Jesper Rangvid",
year = "2019",
month = nov,
day = "27",
language = "English",
series = "CREATES Research Papers",
publisher = "Institut for {\O}konomi, Aarhus Universitet",
number = "2019-22",
type = "WorkingPaper",
institution = "Institut for {\O}konomi, Aarhus Universitet",

}

RIS

TY - UNPB

T1 - The move towards riskier pensions: The importance of mortality

AU - Balter, Anne G.

AU - Kallestrup-Lamb, Malene

AU - Rangvid, Jesper

PY - 2019/11/27

Y1 - 2019/11/27

N2 - This paper models the impact of unanticipated changes in forecasted life expectancies on guaranteed and unguaranteed pension products. We study a unique data set containing individuals offered the opportunity to substitute a guaranteed pension product with relatively low levels of risk to an unguaranteed product with a higher degree of financial and longevity risk. The complexity of the products and the increase in the level of financial literacy required by the individual to make such a decision motivate the need to properly model the most important drivers that characterize the differences between guaranteed and unguaranteed pension products. This is done within the standard Merton, Black and Scholes framework and we find a clear tradeoff between financial risk and longevity risk in terms of their effect on future pension payments. We find that unguaranteed pension products allow for more financial risk-taking and thus higher expected returns. However, unexpected longevity shocks can reduce pension payments in unguaranteed pension products to a lower level relative to guaranteed products.

AB - This paper models the impact of unanticipated changes in forecasted life expectancies on guaranteed and unguaranteed pension products. We study a unique data set containing individuals offered the opportunity to substitute a guaranteed pension product with relatively low levels of risk to an unguaranteed product with a higher degree of financial and longevity risk. The complexity of the products and the increase in the level of financial literacy required by the individual to make such a decision motivate the need to properly model the most important drivers that characterize the differences between guaranteed and unguaranteed pension products. This is done within the standard Merton, Black and Scholes framework and we find a clear tradeoff between financial risk and longevity risk in terms of their effect on future pension payments. We find that unguaranteed pension products allow for more financial risk-taking and thus higher expected returns. However, unexpected longevity shocks can reduce pension payments in unguaranteed pension products to a lower level relative to guaranteed products.

KW - Macro longevity risk

KW - Variable annuities

KW - Guarantee

KW - Unguarantee

M3 - Working paper

T3 - CREATES Research Papers

BT - The move towards riskier pensions: The importance of mortality

PB - Institut for Økonomi, Aarhus Universitet

CY - Aarhus

ER -