Measurement and Impact of Longevity Risk in Portfolios of Pension Annuity: The Case in Sub Saharan Africa

Samuel Asante Gyamerah (), Janet Arthur, Saviour Worlanyo Akuamoah and Yethu Sithole
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Samuel Asante Gyamerah: Department of Statistics and Actuarial Science, Kwame Nkrumah University of Science and Technology, Private Mail Bag, Kumasi P.O. Box KS 9265, Ghana
Janet Arthur: Department of Statistics and Actuarial Science, Kwame Nkrumah University of Science and Technology, Private Mail Bag, Kumasi P.O. Box KS 9265, Ghana
Saviour Worlanyo Akuamoah: Department of Mathematics and Statistics, Ho Technical University, Ho P.O. Box HP 217, Ghana
Yethu Sithole: Department of Mathematical Sciences, University of South Africa, Preller Street, Muckleneuk Ridge, Pretoria 0001, South Africa

FinTech, 2023, vol. 2, issue 1, 1-20

Abstract: Longevity is without a doubt on the rise throughout the world due to advances in technology and health. Since 1960, Ghana’s average annual mortality improvement has been about 1.236%. This poses serious longevity risks to numerous longevity-bearing assets and liabilities. As a result, this research investigates the effect of mortality improvement on pension annuities related to a particular pension scheme in Ghana. Different stochastic mortality models (Lee–Carter, Renshaw–Haberman, Cairns–Blake–Dowd, and Quadratic Cairns–Blake–Dowd) are used to forecast mortality improvements between 2021 and 2030. The results from accuracy metrics indicate that the quadratic Cairns–Blake–Dowd model exhibits the best fit to the mortality data. The findings from the study demonstrate that mortality for increasing ages within the retirement period was declining, with increasing improvement associated with increasing ages. Furthermore, the forecasts were used to estimate the associated single benefit annuity for a GHS 1 per annum payment to pensioners, and it was discovered that the annuity value expected to be paid to such people was not significantly different regardless of the pensioner’s current age.

Keywords: stochastic mortality model; actuarial ratemaking; mortality forecasting; longevity risk; pension management; Lee–Carter model (search for similar items in EconPapers)
JEL-codes: C6 F3 G O3 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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