New analysis by consulting firm Lane, Clark & Peacock of the new Projections Life Table AG2024, produced by the Royal Dutch Actuarial Association, finds that life expectancy assumptions are significantly higher than plausible alternative projections.
LCP says that taking an approach more akin to the CMI model that is widely used by actuaries in the UK would make more allowance for the slowdown in life expectancy gains seen in the last decade, and for the direct and indirect consequences of the Covid-19 pandemic.
LCP says that what sounds like a technical point has real world consequences for Dutch pension funds, and for the insurers and reinsurers active in the growing Dutch pension risk transfer market. Life expectancy at age 65 differs by more than 5% between the two models. This could mean that pension funds are overestimating their liabilities significantly. In fact, the value of the €20-30bn of Dutch pension scheme liabilities expected to be bought out by insurers by 2027 could differ by at least €500m depending on the model used.
With models from two well-respected actuarial bodies producing such different mortality projections, LCP says that Dutch pension funds, insurers and reinsurers should consider which projection best represents their view of future mortality in the Netherlands.
“Our analysis highlights that different underlying assumptions about the path of future mortality rates can be financially significant for pension funds and insurers. Pension funds should ensure that they any decisions on the value for money offered by buyouts use realistic mortality assumptions,” said Stuart McDonald, LCP Partner and Head of Longevity and Demographic Insights.
“LCP advice draws on input from our multi-disciplinary team of epidemiologists, clinicians and other health experts. This provides us with insights into what has disrupted historical trends and the extent to which excess mortality will persist into the future.”
Life Risk News has contacted the Royal Dutch Actuarial Association for comment.
