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Research Studies in Pension

Factor Affecting Retirement Mortality (FARM)–Abstract

This FARM site consists of

• an Introduction
• an Abstract
• a Bibliography of research papers
• a collection of Summaries of the research papers.

Use the Table of Summaries to link to the summaries either by author or by risk factor.

• Bibliography | Introduction | Table of Summaries
• Abstract
• This paper is the final report in a project commissioned by the Society of Actuaries Social Security Committee. The paper considers a variety of possible risk classification factors that could be used in estimating the value of any mortality–based benefit for retirees.
• As many countries consider mandatory individual retirement accounts as their answer to a secure Social Security system, the question arises as to whether all workers can get true "market value " annuities when they retire. It is clear today that private sector life annuities are priced assuming that the applicant is healthy–very healthy. Very little underwriting or risk classification now exists in the individual annuity marketplace. However, if a large percentage of the population were looking to annuitize their Social Security accounts upon retirement, there would be strong pressure for more risk classes in the annuity pricing structure. Even without the advent of individual accounts for Social Security, the authors of this paper feel there may be real market opportunities for more risk classification in the individual annuity market and the offering of "impaired life annuities".
• In addition to refinements in annuity pricing, another issue to consider is proper valuation of liabilities held by defined benefit pension plans, whether privately or publicly sponsored. For example, is it appropriate for all plans to use the same mortality assumption? What variation might we expect from plan to plan, reflecting differences in location, industry, jobs covered, etc.? Poor estimates of mortality, and therefore liabilties, could risk plan solvency or, conversely, unduly constrict plan sponsor and contributing participant assets.
• This paper reviews 45 recent research papers that look at factors that affect mortality after retirement. In particular, factors that seem to be important in predicting retirement mortality include: age, gender, race and ethnicity, education, income, occupation, marital status, religion, health behaviors, smoking, alcohol, and obesity. For each factor, this paper gives highlights relative to the named factor of the impact expected from that variable as described in the 45 reviewed research papers.
• The authors believe there is a wealth of information contained in the summaries that follow, and it is our sincere hope that this paper will cause an increased interest in a more broadly– based risk classification structure for individual annuities and improved mortality assumptions for valuing all retirement benefits.