Dutch actuarial projections do not yet reflect slowdown in life expectancy gains – LCP
Pensions & benefits Demographics
LCP analysis of the new Projections Life Table AG2024 produced by the Koninklijk Actuarieel Genootschap (the Royal Dutch Actuarial Association) finds that life expectancy assumptions are significantly higher than plausible alternative projections.
Taking an approach more akin to the CMI model, widely used by actuaries in the UK, would make more allowance for the slowdown in life expectancy gains seen in the last 15 years, including the direct and indirect consequences of the Covid-19 pandemic.
What sounds like a technical point has real world consequences for Dutch pension funds, and for the insurers and reinsurers active in the growing pension risk transfer market. The two models produce life expectancy assumptions that differ by more than 5% at age 65. This could mean that Dutch pension funds are overestimating their liabilities significantly. In fact, the value of the €20-30bn of Dutch pension fund liabilities expected to be bought out by insurers by 2027 could differ by at least €500 million depending on the model used.
With models from two well-respected actuarial bodies producing such different mortality projections, Dutch pension funds, insurers and reinsurers should consider which projection best represents their view of future mortality in the Netherlands.
Our analysis highlights that different underlying assumptions about the path of future mortality rates can be financially significant for pension funds and insurers. Pension funds should ensure that they any decisions on the value-for-money offered by buyouts use realistic mortality assumptions. LCP advice draws on input from our multi-disciplinary team of epidemiologists, clinicians and other health experts based in the UK and the Netherlands. This provides us with insights into what has disrupted historical trends and the extent to which excess mortality will persist into the future.
Stuart McDonald LCP Partner and Head of Longevity and Demographic Insights
