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Inconsistent EU mortality figures signal threat to investors

Largescale inconsistencies in the mortality assumptions used by actuaries across the EU continue to have significant implications for global investors and organisations, according to academics at Cass Business School.

Five years on from a previous study in which actuaries were warned that they must address the ‘considerable differences’ in assumptions, academics from Cass Business School, part of City University London, and Kingston University say that nothing has changed.

The widest variation in assumed life expectancy was found to be between France and Denmark, where actuaries assume that a 65-year-old man can expect to live for 27.5 years in the former and 15.1 years in the latter, a difference of more than twelve years.

The study ‘Second International Comparative Study of Mortality Tables for Pension Fund Retirees’, by Cass professors Steve Haberman and Richard Verrall with Terry Sithole of Kingston University, questions whether the differences in the mortality assumptions can be justified by the data, and calls on actuaries to take a more consistent approach.

The document updates a previous study from 2006 which compared mortality assumptions used in the valuation of defined benefit pension liabilities in Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, Spain, Sweden, Switzerland, UK and USA.

Professor Verrall said: "It is not surprising that the mortality assumptions used in company pension schemes should vary from country to country, due to variations in underlying population mortality as well as variations of the profile of typical membership of a company pension scheme. However, it appears that variations in mortality assumptions are much greater than would be justified by these factors alone."

Commenting on the impact of the variations, Professor Haberman added: "Defined benefit pension liabilities can form a significant item on the balance sheet of many companies. If, for example, a company is the subject of a merger or acquisition and the jurisdiction of the regulations governing the pension liability changes, this can have a significant impact on the transaction."

The new project was commissioned by the IAA Mortality Task Force due to the adoption of new mortality tables in some countries since the original study. In many cases, the population mortality data have also been updated. The underlying research work was funded by the Actuarial Profession through its Mortality Research Steering Group.

The 2006 study was funded by the Actuarial Profession and a group of firms of consulting actuaries.