Measurement and Impact of Longevity Risk in Portfolios of Pension Annuity: The Case in Sub Saharan Africa

Abstract

Longevity is without a doubt on the rise throughout the world due to advances in technology and health. Since 1960, Ghana’s average annual mortality improvement has been about 1.236%. This poses serious longevity risks to numerous longevity-bearing assets and liabilities. As a result, this research investigates the effect of mortality improvement on pension annuities related to a particular pension scheme in Ghana. Different stochastic mortality models (Lee–Carter, Renshaw–Haberman, Cairns–Blake–Dowd, and Quadratic Cairns–Blake–Dowd) are used to forecast mortality improvements between 2021 and 2030. The results from accuracy metrics indicate that the quadratic Cairns–Blake–Dowd model exhibits the best fit to the mortality data. The findings from the study demonstrate that mortality for increasing ages within the retirement period was declining, with increasing improvement associated with increasing ages. Furthermore, the forecasts were used to estimate the associated single benefit annuity for a GHS 1 per annum payment to pensioners, and it was discovered that the annuity value expected to be paid to such people was not significantly different regardless of the pensioner’s current age.

Labor Force Participation Rate and Expected Length of Retirement 2001-2047: A Case Study in Malaysia

“…There have been various methods and models used to forecast mortality rates, with the Lee-Carter model and Cairns-Blake-Dowd model being commonly used in empirical studies. CBD model with a cohort effect was found to provide the greatest fit for males in England and Wales [36], whereas the quadratic CBD model showed the best fit to mortality data in other studies [37]. However, other research indicated that variants of Lee-Carter model better suit their data [31], [38], [39].…”

Comparative Analysis of Linear Models and Artificial Neural Networks for Sugar Price Prediction

“…It is widely used in organizational environments and presents deep statistical bases [28,33]. Time series forecasting can be classified into four groups: forecasting based on time series decomposition, smoothing-based techniques, regression-based techniques, and machine approaches [34]. This section describes the main concepts of the linear methods and ANNs addressed.…”

Labor Force Participation Rate and Expected Length of Retirement 1989-2066: Comparison of Several OECD Countries

“…The CBD model and the Lee-Carter model were employed in various research to identify which best fits the data. CBD model with a cohort effect was found to provide the greatest fit for males in England and Wales ( [31]), whereas the quadratic CBD model showed the best fit to mortality data in other studies ( [32]). However, other research indicated that variants of Lee-Carter model better suit their data ( [27,33]).…”