Do actuaries believe in longevity deceleration?

Abstract

As more and more people believe that significant life extensions may come soon, should commonly used future mortality assumptions be considered prudent? We find here that commonly used actuarial tables for annuitants -as well as the Lee-Carter model -do not extrapolate life expectancy at the same rate for future years as for past years; instead they produce some longevity deceleration. This is typically because their mortality improvements decrease after a certain age, and those age-specific improvements are constant over time. As potential alternatives i) we study the Bongaarts model that produces straight increases in life expectancy; ii) we adapt it to produce best-practice longevity trends iii) we compare with various longevity scenarios even including a model for "life extension velocity". iv) after gathering advances in biogerontology we discuss elements to help retirement systems cope with a potential strong increase in life expectancy.

Can Pension Funds Partially Manage Longevity Risk by Investing in a Longevity Megafund?

“…As highlighted in the first two graphs of Figure 1 for 3 countries and by Debonneuil et al (2017) for a range of 24 countries, ϕ = 20% fits the current longevity trend. This why we consider ϕ = 20% before t = 0.…”

“…The same style of lines is used for the next two graphs, that represent the mortality rate at different ages in log scale, for the years 1990 and 2015, respectively. The model matches the Japanese mortality well from age 40 to 85; mortality rates at these ages are important to model life expectancy at age 65 and below (see Debonneuil et al 2017). In the fourth graph, the model at 1990 is additionally shown to provide a visual reference on how mortality rates have evolved from 1990 to 2015.…”

“…We choose a model, derived from Bongaarts (2005) and Debonneuil et al (2017), that is simple enough to be traceable and understandable but incorporates key features that are rarely encountered in actuarial sciences: as we will see, it generates non-decelerating life expectancies and is relatively universal owing to its simplicity. It is defined by this logistic formula for the annual mortality rate of someone aged x in t years:…”

“…We consider that the conversion from the accumulated capital C 65,t to the benefit amount B t is done based on the mortality model with ϕ = 20%. Since actuarial tables generally have decelerating trends (see Debonneuil et al 2017), insurers would consider it prudent compared to existing practices. If longevity increases much, the use of ϕ = 20% remains a plausible base since actuarial tables do not evolve immediately after observing overestimations of mortality rates (see Vaupel 2010).…”

“…Longevity risk is generally directly or indirectly estimated by how well models match historical mortality data. However, as described by Debonneuil et al (2017), not only do frequent actuarial models unknowingly project decelerating life expectancy trends, advances on the largest source of longevity risk are largely ignored: a likely forthcoming wave of biomedical solutions to old age conditions that comes from biology of aging and animal models. Here, we therefore aim to take into account such advances, and we suggest a simple model that does not produce decelerating life expectancy trends to generate longevity scenarios.…”