Wharton Pension Research Council Working Papers
 

Title

The Securitization of Longevity Risk and its Implications for Retirement Security

Document Type

Working Paper

Date of this Version

10-1-2013

Abstract

The economic significance of longevity risk for governments, corporations, and individuals has begun to be recognized and quantified. The traditional insurance route for managing this risk has serious limitations due to capacity constraints that are becoming more and more binding. If the 2010 U.S. population lived three years longer than expected then the government would have to set aside 50% of the U.S. 2010 GDP or approximately $7.37 trillion to fully fund that increased social security liability. This is just one way of gauging the size of the risk. Due to the much larger capacity of capital markets more attention is being devoted to transforming longevity risk from its pure risk form to a speculative risk form so that it can be traded in the capital markets. This transformation has implications for governments, corporations and individuals that will be explored here. The analysis will view the management of longevity risk by considering how defined contribution plans can be managed to increase the sustainable length of retirement and by considering how defined benefit plans can be managed to reduce pension risk using longevity risk hedging schemes.

Comments

The published version of this Working Paper may be found in the 2014 publication: Recreating Sustainable Retirement: Resilience, Solvency, and Tail Risk.

Keywords

Longevity Risk, Retirement, Securitization, Buy-Out, Longevity Swap

Working Paper Number

WP2013-22

Copyright/Permission Statement

All opinions, errors, findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2013 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.

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Date Posted: 26 June 2019