The Research On The Influence Of Longevity Risk On Defined Benefit Pension Plan

With the development of economy and social productivity,life expectancy of our country is rising.For pension plan,longevity risk means that future payment increases due to the unexpected decrease of participants' average mortality,which is significant to the operation of pension plan.This article will have an insight into the longevity risk of defined benefit pension plan.First,a systematic introduction to longevity risk of defined benefit pension plan is given.Later,Lee-Carter Model is used to predict the mortality in our country,showing that the mortality in the future significantly decreases.Based on the mortality predicted above,this article researches on the influence of longevity risk under the framework of the optimization problem of defined benefit pension plan's asset allocation.Firstly,the optimization model is set up according to the actuarial cost method.It is found that the solvency risk of female participants is higher than that of male participants under the same conditions.Secondly,the sensitivity test shows that the risk level of pension plan is sensitive to the change of allocation proportion in high-risk assets.Thirdly,the scenario analysis reveals the difference between the results under the Experience Life Table and those under the data predicted before.It is found that under the initial optimization results,fund deficit will occur in the following 10 to 20 years.Then the optimization results under the scenario of longevity show that longevity will make the allocation proportion decreases in medium-risk assets but greatly increases in risk-free assets.Lastly the model in the case of hedging is built and shows that hedging will reduce the impact of longevity risk and make the allocation proportion in risky assets tend to go up.This article ends with some innovative managing methods of longevity risk.On the summary of the barriers to carrying these methods in our country,some suggestions will be given.