Abstract
Defined benefit (DB) pension plans should evaluate their sensitivity to longevity risk in order to quantify its impact and facilitate more effective plan-management strategies. While this might seem daunting at first glance, doing so is easier than is commonly thought. We advocate the use of a particular measure of longevity sensitivity called q-duration, which measures the sensitivity of the value of the pension liabilities to changing mortality rates. The q-duration of a pension plan can be calculated easily by plan actuaries. As part of this process, we recommend a mortality mark-to-market, to ensure that plan mortality tables are aligned with the demographic profile of beneficiaries and up-to-date relative to currently observed mortality rates.
- © 2014 Pageant Media Ltd
Don’t have access? Register today to begin unrestricted access to our database of research.