Welcome by the Royal Society and lead organiser
The UK State Pension age review and demographic uncertainty
Colin Wilson, Government Actuary's Department, UK
The 2017 review of State Pension age included an independent report (the "Cridland report") and projections of life expectancy by the Government Actuary. A particular feature of the latter was an indication of alternative scenarios reflecting some of the uncertainty in future longevity. Since these reports an apparent slowdown in longevity improvements seems to have crystallised, highlighting the importance of acknowledging the degree of uncertainty inherent in longevity projections. This session explains how the review allowed for uncertainty and some possible implications.
Mortality Estimation and Forecasting: Models, Methods and Issues
Professor Jon Forster, University of Southampton, UK
The Royal Society has a long association with mortality estimation dating back to the original development of the subject by John Graunt, presented to the Society in the seventeenth century. Mortality forecasting, an essential component in the valuation of pension liabilities, has a much more recent heritage. Modern forecasting methods are typically based on stochastic models and allow realistic quantification of uncertainty and, where appropriate, the incorporation of expert opinion. This talk will present a selective review of model-based mortality forecasting approaches. Key issues in mortality forecasting will be considered, including cohort variation, smoothing, sparse data and the potential for borrowing strength by jointly modelling (sub)populations. In light of recent UK data exhibiting relatively weak mortality improvements, the question of how reactive forecasts should be to apparent shifts in observed mortality experience will also be discussed.
Quantitative easing impacts - what may be the endgame?
Baroness Ros Altmann CBE, House of Lords, UK
For the past ten years, long-term bond yields have remained exceptionally low, which has significantly impacted pensions. Pension liabilities have been artificially inflated by unconventional central bank ‘quantitative easing' (QE) policies, leading to rising deficits and increasing annuity costs. QE has focussed on driving long rates lower, by purchasing sovereign and other bonds with newly created money. This unprecedented monetary policy experiment has had a number of side-effects and the ultimate impacts are not yet known. Having bought significant proportions of fixed income issuance in order to provide artificial economic stimulus, what next? How might Quantitative Tightening play out in markets and what does this mean for pensions?
Intergenerational fairness: statistical analysis, assumptions & actuarial models
Professor Jane Hutton, University of Warwick, UK
Intergenerational fairness is an important and ancient concept in society and government. With respect to pensions, intergenerational fairness as well as fairness to women of a certain age have been debated when considering changes in state pension age.
Funded defined benefit schemes which are estimated to have deficits are required to impose deficit recovery payments or change benefits. Current members pay not only for their own future pensions, but also for their predecessors' (and their own) accrued entitlements. It is often assumed that this means younger people paying for older people. However, older generations' pensions contributions have provided productive capital investment and infrastructure used by all ages. Strict intergenerational 'fairness' within a scheme might neglect wider social balance.
Actuarial models require assumptions in order to estimate assets, liabilities, life expectancy and other demographic factors. Multiple assumptions biased away from statistically valid estimates can substantially increase an estimated deficit. Consequences of these assumptions affect not only the particular scheme's stakeholders, but wider society. Money used for deficit recovery payments is diverted away from business investment and dividends. A large estimated deficit can bankrupt a company, and put many people out of work. If pension contributions are tax-exempt, the government's income is reduced.
Assumptions underlying actuarial models are not merely economic or statistical.