Abstract
Longevity risk—the risk of unanticipated increases in life expectancy—has only recently been recognized as a significant risk facing defined benefit pensions plans. With many pension plans now having executed longevity hedges of various types, managing this risk has moved onto the agenda of a growing number of plans in different countries, including the U.S., U.K., Canada, and the Netherlands. This article discusses how longevity risk impacts defined benefit pension plans and presents a framework for managing this risk. The framework views the plan’s longevity exposure as an implicit leveraged investment in longevity risk that must be taken into account in the strategic asset allocation process.
- © 2012 Pageant Media Ltd
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