Pooled Annuity Fund Under Mortality Risk

With the development of global economic, science and technology, the im-provement of medical treatment and sanitation, and the change of people's lifestyle, longevity becomes an inevitable trend. Longevity should be a good trend from the perspective of human beings; however, it is also a kind of risk, especially for develop-ing countries like China. Currently, though our national economy keep a high-speed growth, the wealth that people accumulated before retirement is still not enough to compensate for their expenditure after retirement because of the huge population base of China. This would lead to individual financial deficits and produce longevity risk. General speaking, people purchase annuity to avert longevity risk, particularly annuities that could meet the aged needs. On the contrast of longevity risk, people give the definition of short-lived risk, which is the risk that people might pass away suddenly while their personal savings not being used up. Generally speaking, these two risks as a whole is called mortality risk.There are two solutions when facing longevity risk:First, purchasing life an-nuity; second, participating in pooled annuity fund. However, both methods have weakness. Annuity products are rated based on the mortality table, which could not reflect the current changes. As the result of the longevity trend, the decrease of mortality would affect the calculation of difference between actual death ratio and theoretic death ratio, difference between actual interest rate and theoretic in-terest rate, and difference between actual premium and theoretic premium, which raise enormous pressure on solvency of annuity products. Without proper planning in advance, the financial liquidity of insurance companies would face severe test. Under the great pressure of insolvency, insurance companies usually reduce the an-nuity payment, which brings risk to the annuity purchasers. Pooled annuity fund is a fund-raising approach that let all participants shared the fund. Whenever there was a death, the rest participants would get an increment of share, which means the last survival would receive the rest of the amount. The most significant advantage of pooled annuity fund is that it constructs a mutual fund managed by professionals which diversifies investment risk and brings benefits to each participant.Therefore, the study on pooled annuity fund will help to find the solution against longevity risk, and promote the further development of pooled annuity fund in China.