Modelling pensioner longevity

A variety of options are open to actuaries who want to model pensioner mortality, including Generalised Linear Models (GLMs) and survival models. This article compares and contrasts these two classes of model, and explains the circumstances when survival models are preferable to GLMs

With a backdrop of subdued inflation, lower long-term interest rates and generally lower investment returns, the importance of pensioner longevity has increased greatly in recent years. In the United Kingdom, the growth of money-purchase private pensions since 1988 has meant that the volume of funds seeking an annuity now exceeds £7 billion per annum (Source: ABI). However, by far the biggest impact is in defined-benefit ('final-salary') pension schemes provided by employers. These schemes carry perhaps around £1 trillion of liabilities to current and future pensioners in the UK, so changes in life expectancy have a large macro-economic impact on the private sector.

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