Taking the long view

Governments are among the few agencies that can help the private sector hedge against the increasing problem of aggregate longevity risk. David Blake, Tom Boardman, Andrew Cairns and Kevin Dowd from the Pensions Institute at Cass Business School argue governments should do this by issuing longevity bonds as soon as possible

Dramatic increases in life expectancy in recent years have left private sector pension funds and annuity providers with massive longevity exposure - and unlike other risks, such as credit or interest-rate risk, there are few options available to hedge this risk on any significant scale within the private sector itself.

In the UK, for example, despite the recent rapid expansion in the number of pension buy-out companies, the buy-out market still only has a turnover of around £5 billion per year -