Pension shortfalls will be exacerbated by underestimating life expectancies, according to a report by Swiss Re. An essential element to preparing for longevity risk, the reinsurer found, is to develop better predictive methods for determining mortality.
"The failure to consider future drivers of mortality in historical predictions contributed to employer pension funds under-reserving for longevity risk and other bodies, including governments, not budgeting effectively for funding an ageing population," Daniel Ryan, head of life and health research and development at Swiss Re, said in a statement.
Effective longevity models would have to take social factors, medical treatments and preventative approaches into account. The report recommends that pension plans assess their exposure to longevity risk and decide whether to pass it on to a third party that is better equipped to take on the risk.
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