LCP LifeAnalytics allows you to create an integrated framework for measuring and managing longevity alongside investment risks.
It helps you to undertake a robust and holistic assessment of your pension scheme’s risks.
Most pension schemes know how to measure the investment risks they face. But this tells only part of the story. To get the complete picture you also need to consider longevity risk. In fact, if you have taken steps to reduce your investment risks you may find that longevity is now the biggest risk you are running.
Very simply, longevity risk is the risk your members live longer than expected, increasing the total cost of providing their pensions. There are three components of longevity risk and the balance between them depends on the characteristics of your scheme.
The risk that current rates of mortality (often determined by looking at postcodes or recent scheme experience) have been mis-estimated.
The risk that future improvements in mortality rates have been mis-estimated.
The risk arising due to the timing of individual member deaths (eg a high liability member living longer than expected).
Understanding the level of longevity risk in your scheme will help you to make better investment, funding and de-risking decisions.
Answer three simple questions about your scheme to find out if you're thinking about longevity risk in the right way.
LCP LifeAnalytics is a unique tool that allows you to measure the longevity risk in your pension scheme. By analysing your pension scheme liabilities at an individual member level, it provides a tailored longevity “Value at Risk” for your scheme, which can be compared alongside your investment risk. The longevity risk can be measured over any relevant time horizon (such as a 10 year journey plan) and at any risk level (eg a 1-in-20 year event).
Once you fully understand your longevity risk, and how it compares to your other risks, you can make better decisions about how to manage it.
LCP LifeAnalytics allows you to create an integrated framework for measuring and managing longevity alongside investment risks.
It helps you to undertake a robust and holistic assessment of your pension scheme’s risks.
Having a joined-up understanding of your risk exposures will improve your investment and funding strategies.
For example, you will be able to readily see which de-risking actions (across options to hedge investment risk, longevity risk or both) offer you the best “bang for the buck”. It will also ensure that your funding strategy and long-term targets (eg “self-sufficiency”) make suitable allowance for longevity expectations.
LCP LifeAnalytics can help you to set appropriate and realistic price targets for insurance or to obtain indicative longevity swap pricing from reinsurers.
It can also help you to make an informed assessment of the value for money of pricing received – across the full range of longevity swap, buy-in and buy-out options, and for any subset of your membership (eg for a partial buy-in or a “top-slice” transaction).
Our report delves into the factors behind the changes in life expectancy and how this is impacting pension schemes. Download report
