Special Issue "Designing Post-Retirement Benefits in a Demanding Scenario"

A special issue of Risks (ISSN 2227-9091).

Deadline for manuscript submissions: closed (15 January 2017).

Special Issue Editor

Prof. Annamaria Olivieri
E-Mail Website
Guest Editor
Department of Economics, University of Parma, Via Kennedy 6, Parma 43100, Italy
Interests: Risk management for life insurance and pension funds, in particular with reference to longevity risk; Solvency for life portfolios and pension funds; Actuarial perspectives of annuitization and post-retirement choices in pension products; Multistate models for the insurances of the person; Actuarial pricing of life and health insurance products; Actuarial models for the valuation of the life insurance business

Special Issue Information

Dear Colleagues,

Providing post-retirement benefits involves many challenges, due to new risks (such as the longevity risk), as well as to the new perspective that traditional risks (such as the financial or the insurance risk) may take in a long-term time horizon. Higher longevity joint to lower investment returns raise several issues; although some have already been discussed in the literature, further investigations are still recommended. For example: There is an extensive discussion about mortality projections, but it is now becoming more important to predict the lifetime at the highest ages. Reinsurance and capital market longevity risk management solutions have been addressed, but such markets are still underdeveloped. Furthermore, traditional post-retirement benefits include a longevity guarantee, which, apart from being currently expensive, makes the arrangement inflexible in respect of individual choices. Individuals are reluctant to underwrite inflexible products, but would like to obtain the guarantees commonly available in social security benefits at an affordable cost. Conversely, providers are realizing that it is convenient to weaken some of the traditional guarantees, since the implied risk if retained could be too expensive for shareholders, and if charged to annuitants would make the product unattractive.

The purpose of this Special Issue is to collect contributions on the product design of post-retirement benefits aimed at reconciling individual preferences with the need for providers to work with an appropriate risk profile. Contributions on the modelling, fair pricing and hedging of the guarantees included in post-retirement arrangements are also invited.

Prof. Dr. Annamaria Olivieri
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All papers will be peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

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Keywords

  • Longevity risk
  • Longevity-linking arrangements for annuity benefits
  • Alternative life annuity designs: Standard, lifestyle, life care, long-term care, tontine, event-contingent, variable annuities
  • Risk classification for life annuities
  • Financial and longevity guarantees in life annuity products
  • Pricing and hedging of financial and longevity guarantees
  • Annuitization strategies
  • Optimal annuitization decisions
  • High age mortality

Published Papers (4 papers)

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Research

Open AccessArticle
Longevity Risk Management and the Development of a Value-Based Longevity Index
Risks 2018, 6(1), 10; https://doi.org/10.3390/risks6010010 - 11 Feb 2018
Abstract
The design and development of post-retirement income products require the assessment of longevity risk, as well as a basis for hedging these risks. Most indices for longevity risk are age-period based. We develop and assess a cohort-based value index for life insurers and [...] Read more.
The design and development of post-retirement income products require the assessment of longevity risk, as well as a basis for hedging these risks. Most indices for longevity risk are age-period based. We develop and assess a cohort-based value index for life insurers and pension funds to manage longevity risk. There are two innovations in the development of this index. Firstly, the underlying variables of most existing longevity indices are based on mortality experience only. The value index is based on the present value of future cash flow obligations, capturing all the risks in retirement income products. We use the index to manage both longevity risk and interest rate risk. Secondly, we capture historical dependencies between ages and cohorts with a cohort-based stochastic mortality model. We achieve this by introducing age-dependent model parameters. With our mortality model, we obtain realistic cohort correlation structures and improve the fitting performance, particularly for very old ages. Full article
(This article belongs to the Special Issue Designing Post-Retirement Benefits in a Demanding Scenario)
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Open AccessArticle
Enhancing Singapore’s Pension Scheme: A Blueprint for Further Flexibility
Risks 2017, 5(2), 25; https://doi.org/10.3390/risks5020025 - 13 Apr 2017
Abstract
Building a social security system to ensure Singapore residents have peace of mind in funding for retirement has been at the top of Singapore government’s policy agenda over the last decade. Implementation of the Lifelong Income For the Elderly (LIFE) scheme in 2009 [...] Read more.
Building a social security system to ensure Singapore residents have peace of mind in funding for retirement has been at the top of Singapore government’s policy agenda over the last decade. Implementation of the Lifelong Income For the Elderly (LIFE) scheme in 2009 clearly shows that the government spares no effort in improving its pension scheme to boost its residents’ income after retirement. Despite the recent modifications to the LIFE scheme, Singapore residents must still choose between two plans: the Standard and Basic plans. To enhance the flexibility of the LIFE scheme with further streamlining of its fund management, we propose some plan modifications such that scheme members do not face a dichotomy of plan choices. Instead, they select two age parameters: the Payout Age and the Life-annuity Age. This paper discusses the actuarial analysis for determining members’ payouts and bequests based on the proposed age parameters. We analyze the net cash receipts and Internal Rate of Return (IRR) for various plan-parameter configurations. This information helps members make their plan choices. To address cost-of-living increases we propose to extend the plan to accommodate an annual step-up of monthly payouts. By deferring the Payout Age from 65 to 68, members can enjoy an annual increase of about 2% of the payouts for the same first-year monthly benefits. Full article
(This article belongs to the Special Issue Designing Post-Retirement Benefits in a Demanding Scenario)
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Open AccessFeature PaperArticle
Immunization and Hedging of Post Retirement Income Annuity Products
Risks 2017, 5(1), 19; https://doi.org/10.3390/risks5010019 - 16 Mar 2017
Abstract
Designing post retirement benefits requires access to appropriate investment instruments to manage the interest rate and longevity risks. Post retirement benefits are increasingly taken as a form of income benefit, either as a pension or an annuity. Pension funds and life insurers offer [...] Read more.
Designing post retirement benefits requires access to appropriate investment instruments to manage the interest rate and longevity risks. Post retirement benefits are increasingly taken as a form of income benefit, either as a pension or an annuity. Pension funds and life insurers offer annuities generating long term liabilities linked to longevity. Risk management of life annuity portfolios for interest rate risks is well developed but the incorporation of longevity risk has received limited attention. We develop an immunization approach and a delta-gamma based hedging approach to manage the risks of adverse portfolio surplus using stochastic models for mortality and interest rates. We compare and assess the immunization and hedge effectiveness of fixed-income coupon bonds, annuity bonds, as well as longevity bonds, using simulations of the portfolio surplus for an annuity portfolio and a range of risk measures including value-at-risk. We show how fixed-income annuity bonds can more effectively match cash flows and provide additional hedge effectiveness over coupon bonds. Longevity bonds, including deferred longevity bonds, reduce risk significantly compared to coupon and annuity bonds, reflecting the long duration of the typical life annuity and the exposure to longevity risk. Longevity bonds are shown to be effective in immunizing surplus over short and long horizons. Delta gamma hedging is generally only effective over short horizons. The results of the paper have implications for how providers of post retirement income benefit streams can manage risks in demanding conditions where innovation in investment markets can support new products and increase the product range. Full article
(This article belongs to the Special Issue Designing Post-Retirement Benefits in a Demanding Scenario)
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Open AccessFeature PaperArticle
Frailty and Risk Classification for Life Annuity Portfolios
Risks 2016, 4(4), 39; https://doi.org/10.3390/risks4040039 - 26 Oct 2016
Cited by 1
Abstract
Life annuities are attractive mainly for healthy people. In order to expand their business, in recent years, some insurers have started offering higher annuity rates to those whose health conditions are critical. Life annuity portfolios are then supposed to become larger and more [...] Read more.
Life annuities are attractive mainly for healthy people. In order to expand their business, in recent years, some insurers have started offering higher annuity rates to those whose health conditions are critical. Life annuity portfolios are then supposed to become larger and more heterogeneous. With respect to the insurer’s risk profile, there is a trade-off between portfolio size and heterogeneity that we intend to investigate. In performing this, there is a second and possibly more important issue that we address. In actuarial practice, the different mortality levels of the several risk classes are obtained by applying adjustment coefficients to population mortality rates. Such a choice is not supported by a rigorous model. On the other hand, the heterogeneity of a population with respect to mortality can formally be described with a frailty model. We suggest adopting a frailty model for risk classification. We identify risk groups (or classes) within the population by assigning specific ranges of values to the frailty within each group. The different levels of mortality of the various groups are based on the conditional probability distributions of the frailty. Annuity rates for each class then can be easily justified, and a comprehensive investigation of insurer’s liabilities can be performed. Full article
(This article belongs to the Special Issue Designing Post-Retirement Benefits in a Demanding Scenario)
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