OECD PROJECTS ON MORTALITY AND ANNUITY PRODUCTS WORKING PARTY ON PRIVATE PENSIONS (WPPP) Pablo Antolin OECD DAF/FIN Pension Unit

Transcription

1 OECD PROJECTS ON MORTALITY AND ANNUITY PRODUCTS WORKING PARTY ON PRIVATE PENSIONS (WPPP) Pablo Antolin OECD DAF/FIN Pension Unit

2 Our Talk Today Mortality and life expectancy assumptions: longevity risk The project on annuity products Where to find our work 2

3 PROJECT ON MORTALITY AND LIFE EXPECTANCY ASSUMPTIONS LONGEVITY RISK Pablo Antolin OECD DAF/FIN Pension Unit

4 Structure 1. Assess how pension funds, annuity providers and the regulatory framework incorporate future improvements in mortality and life expectancy In most countries mortality tables do not account fully for future improvements. Mortality tables used by insurance companies account for future improvements in more countries than those used by pension funds. 4

5 Structure 2. Assessing the amount of longevity of risk Projecting improvements in mortality and life expectancy - Four mortality projection models: BCD, LC, P-Splines, CMI Measuring the potential amount of LR 5

6 Structure 3. Policy discussion on managing longevity risk, encouraging capital market solutions to hedging LR, and the role of governments. 4. Set of policy recommendations and best practices 6

7 Policy analysis Why longevity risk is important? Policy options to develop capital market solutions for LR Reasons why governments should issue longevity-indexed bonds What are the market failures requiring government interventions? 7

8 Project on mortality and life expectancy: Assessing LR Measure LR by comparing liabilities resulting from using the mortality rates in the regulatory tables and commonly used ones With liabilities resulting from stochastic modelling of future improvements in mortality and life expectancy (BCD, LC, Splines, CMI): proxy for the future.

9 Project on mortality and life expectancy: Assessing LR Same base populations (Japan and Spain). Different base populations (annuitants and lifes instead of overall population) but adjustments France (professions) UK (CMI lives) USA Different base populations (Brazil, Canada, Chile, Germany, Switzerland)

10 Project on mortality and life expectancy: Assessing LR Regulatory and market practice mortality tables fail to account fully for longevity risk. In several countries (Canada, Chile, Germany, Japan, Switzerland and the United States), the life expectancy at age 65 and the annuity factor seem to be lower when using the mortality rates embedded in the regulatory and market practice mortality tables than when using the mortality rates stemming from the mortality projection models. In some other countries (Brazil, France, Spain and the United Kingdom) the regulatory and market practice mortality tables do not seem to suffer from potential longevity risk.

11 Request Mortality data ( ) for annuitants or life members populations Mortality data by income, educational level, professions, or other socio-economic variables Studies that look at mortality and life expectancy differences across different population socio-economic subgroups.

12 PROJECT ON ANNUITY PRODUCTS Pablo Antolin OECD DAF/FIN Pension Unit

13 Background IPPC and WPPP a lot of work on annuities in the last few years Main message: Annuity products are essential instruments for the structuring of the pay-out phase, in particular DC plans, as they provide protection from longevity risk 13

14 Background Unfortunately, our work shows that the market for annuity products is fraught with problems. Most of the work done at the IPPC and WPPP on dealing with this have focused on supply-side problems, in particular the management of longevity risk and the potential capital market solutions to hedge longevity risk 14

15 Purpose of the Project Understand better the problems facing annuity markets by focusing closely on the type of annuity products, the nature of their guarantees, their costs for insurance and consumers, Comprehend better the regulatory framework governing different type of annuity products, Learn about the fiscal treatment of annuity products, including the treatment of income from these products 15

16 Structure of the project Stocktaking on the type of annuity products according to the guarantees they provide Regulatory framework: capital reserving rules according to guarantees provided Risk managing: approaches used by the industry to manage the risks stemming from the different guarantees embedded in different annuity products Consumer protection (EIOPA) Fiscal treatment of annuity products Policy recommendations

17 Where to Find our Work on Private Pensions General work on pensions Mortality, life expectancy and LR project Annuity products 17

18 THANK YOU VERY MUCH 18