Pension funds longevity risk fears appear to be decreasing

by Artemis on October 6, 2010

The results of a survey undertaken by Lucida, an insurance company focused on annuity and longevity risk business, seem to show that pension funds worries about longevity risks are decreasing and their appetite to use longevity swaps to transfer their risks is lower than last year.

The Pension Pulse survey, the third from Lucida, looks at how the past year has affected pension fund trustees and what it is that concerns them most. Trustees and schemes with combined assets of well over £100b took part in the survey.

Here’s a few quotes from the survey regarding longevity risk transfer:

  • Longevity swaps haven’t yet transacted in large numbers and capital market appetite for taking on the risk is still limited. It remains to be seen whether these will be the“next big thing” in pensions de-risking – or not.
  • The sponsoring company’s commercial future has overtaken longevity and investment performance as the top concern.
  • The percentage of respondents listing longevity as their main concern has fallen significantly, from 28% to 9%.
  • Longevity assumptions have strengthened however, with 59% of respondents saying that they now more than ever expect their  members to live longer.
  • In the 2009 survey 25% of respondents said they had considered utilising longevity swap mechanisms in the past 12 months. This year that figure was just 1% of respondents. Buy out schemes on the other hand have more than doubled in popularity.

So while longevity risks are obviously still one of the key risks these funds have to manage and as a risk their assumption has risen, that doesn’t seem to have translated into increased interest in longevity swaps. Lucida suggest that this could be due to financial market conditions and the complexity involved in these transactions. We still hear a lot of talk about longevity swaps from clients and partners and we expect them to continue to be a tool these pension funds can use to de-risk themselves.

You can download the report from the Lucida website here (in PDF format).

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