Every year, people live longer. That may sound nice, but it’s a big problem for the financial industry, especially pensions providers. Firms would love to be able to trade and hedge longevity risk, but there have been few practical solutions – until now.
"In the long run we are all dead." So wrote John Maynard
Keynes in 1923, criticising economists who try to describe
far-horizon events rather than grappling with the present.
But just how long is "the long run" in terms of your own
lifespan? Because, like it or not, there is almost certainly a
pension fund sponsor or annuity provider somewhere who hopes
that for you it will be shorter rather than longer.
Try not to take it personally. Life expectancy has been
rising across the developed world – in the UK, for
example, by about two years a decade. Although this figure is
likely to start tailing off, your old age is nevertheless
getting a bit costly for the pensions providers.
The more sunrises you see after you’ve cleared
your pencils from your desk and picked up your retirement
carriage clock, the more the defined benefit pension industry,
which has roughly £1tr of liabilities in the UK, will
have to pay out. And they’re worried.
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