What is a promise from the government worth? Quantifying political risk in state and personal pension schemes in the United Kingdom

There are three key types of political risk facing pension schemes: those induced by demographic, economic and pure political factors.

Updated: 22/09/2011
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Views: 5,223

The myth of Methuselah and the uncertainty of death: the mortality fan charts

This paper uses mortality fan charts to illustrate prospective future male mortality. These fan charts show both the most likely path of male mortality and the bands of uncertainty surrounding that path. The fan charts are based on a model of male mortality that is known to provide a good fit to recent UK mortality data. The fan charts suggest that there are clear limits to longevity, that future mortality rates are very uncertain and tend to become more uncertain the further ahead the forecast, and that forecasts of future mortality uncertainty must take account of uncertainty in the parameters of the underlying mortality model.

Updated: 22/09/2011
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Views: 5,687

Delivering DC? barriers to participation in the company-sponsored pensions market

'Delivering DC? barriers to participation in the company-sponsored pensions market', reveals that finance directors often oppose greater employee participation in company pension schemes.

Updated: 22/09/2011
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Views: 5,295

Turning pension plans into pension planes: what investment strategy designers of defined contribution pension plans can learn from commercial aircraft designers

Many, if not most, individuals cannot be regarded as 'intelligent consumers' when it comes to understanding and assessing different investment strategies for their defined contribution pension plans. This gives very little incentive to plan providers to improve the design of their pension plans.

Updated: 22/09/2011
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Views: 5,186

Facing up to uncertain life expectancy: the longevity fan charts

This article uses longevity fan charts to represent the uncertainty in projections of future life expectancy. These fan charts are based on a mortality model calibrated on mortality data for English and Welsh males. The fan charts indicate strong upward sloping trends in future life expectancy. Their widths indicate the extent of uncertainty in these projections, and this uncertainty increases as the forecast horizon lengthens. Allowing for uncertainty in the parameter values of the model adds further to uncertainty in life expectancy. The article also illustrates how longevity fan charts can be used to stress-test longevity outcomes.

Updated: 22/09/2011
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Views: 6,367

Backtesting stochastic mortality models: an ex-post evaluation of multi-period ahead-density forecasts

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 study also finds that density forecasts that allow for uncertainty in the parameters of the mortality model are more plausible than forecasts that do not allow for such uncertainty.

Updated: 22/09/2011
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Views: 5,747

Evaluating the goodness of fit of stochastic mortality models

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 and Welsh male mortality data. The methodology exploits the structure of each model to obtain various residual series that are predicted to be iid standard normal under the null hypothesis of model adequacy. Goodness of fit can then be assessed using conventional tests of the predictions of iid standard normality. The models considered are Lee-Carter's 1992 one-factor model, a version of Renshaw-Haberman's 2006 extension of the Lee-Carter model to allow for a cohort effect, Currie's 2006 age-period-cohort model, which is a simplified version of the Renshaw-Haberman model, the Cairns-Blake-Dowd 2006 two-factor model and two generalised versions of the latter that allow for a cohort effect. For the data set considered, there are some notable differences amongst the different models, but none of the models performs well in all tests and no model clearly dominates the others.

Updated: 22/09/2011
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Views: 5,484

Taking the long view

Governments are among the few agencies that can help the private sector hedge against the increasing problem of aggregate longevity risk.

Updated: 22/09/2011
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Views: 5,577

Pyrrhic victory? The unintended consequences of the Pensions Act 2004

The report warns that the government may win its battle with employers to ensure they pay employees the defined benefit pensions they have promised to date but it will be a pyrrhic victory.

Updated: 22/09/2011
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Views: 6,074