Sharing Longevity Risk: Why Governments Should Issue Longevity Bonds

Pensions Institute Discussion Paper No. PI-1002

27 Pages Posted: 1 Dec 2011

See all articles by David P. Blake

David P. Blake

City, University of London

Tom Boardman

affiliation not provided to SSRN

Andrew J. G. Cairns

Heriot-Watt University - Department of Actuarial Science & Statistics

Multiple version iconThere are 2 versions of this paper

Date Written: March 12, 2010

Abstract

Government-issued longevity bonds would allow longevity risk to be shared efficiently and fairly between generations. In exchange for paying a longevity risk premium, the current generation of retirees can look to future generations to hedge their aggregate longevity risk. There are also wider social benefits. Longevity bonds will lead to a more secure pension savings market - both defined contribution and defined benefit - together with a more efficient annuity market resulting in less means-tested benefits and a higher tax take. The emerging capital market in longevity-linked instruments can get help to kick start market participation through the establishment of reliable longevity indices and key price points on the longevity risk term structure and can build on this term structure with liquid longevity derivatives.

An earlier version was presented at ‘Risk Sharing in Defined Contribution Pension Schemes’, Department for Work and Pensions and Netspar Conference, University of Exeter, 7-8 January 2010

Keywords: Longevity risk, longevity bonds, public policy, political economy

JEL Classification: G22, G23, G24, G28, H11, H63, J11, J18

Suggested Citation

Blake, David P. and Boardman, Tom and Cairns, Andrew J. G., Sharing Longevity Risk: Why Governments Should Issue Longevity Bonds (March 12, 2010). Pensions Institute Discussion Paper No. PI-1002, Available at SSRN: https://ssrn.com/abstract=1964683 or http://dx.doi.org/10.2139/ssrn.1964683

David P. Blake (Contact Author)

City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZX
Great Britain
+44 (0) 20-7040-8600 (Phone)
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HOME PAGE: http://www.pensions-institute.org/

Tom Boardman

affiliation not provided to SSRN

No Address Available

Andrew J. G. Cairns

Heriot-Watt University - Department of Actuarial Science & Statistics ( email )

Edinburgh, Scotland EH14 4AS
United Kingdom

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