Governments and the Market for Longevity-Indexed Bonds

17 Pages Posted: 8 Feb 2007

See all articles by Pablo Antolin

Pablo Antolin

Organisation for Economic Cooperation and Development, OECD

Hans J. Blommestein

Vivid Economics; Organization for Economic Co-Operation and Development (OECD); Tilburg University - Tilburg University School of Economics and Management

Date Written: January 2007

Abstract

Uncertainty about length of life, longevity risk, is a growing financial problem for pension funds and annuity providers. They would like to transfer longevity risk away to institutions better placed to deal with it. Unfortunately, there is a lack of financial instruments to hedge against this longevity risk, thereby complicating risk management by pension funds and hindering the expansion of the annuity market. Consequently, this paper examines the role of government in promoting a private market solution for longevity hedging financial products. Governments could improve the market for annuities by issuing longevity indexed bonds and by producing a longevity index. The paper argues though that this public policy role is hampered by the fact that governments are themselves are already exposed to significant longevity risk. However, governments could take other steps such as producing a longevity index.

Keywords: Uncertainty; longevity risk; pension funds; DB and DC plans; annuities; financial instruments; hedging; longevity-indexed bonds; indices; longevity index

JEL Classification: G23, G28, D8, J11, J26, J32, C15, C32

Suggested Citation

Antolin, Pablo and Blommestein, Hans J., Governments and the Market for Longevity-Indexed Bonds (January 2007). OECD Working Paper on Insurance and Private Pensions No. 4. Available at SSRN: https://ssrn.com/abstract=962032 or http://dx.doi.org/10.2139/ssrn.962032

Pablo Antolin (Contact Author)

Organisation for Economic Cooperation and Development, OECD ( email )

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Hans J. Blommestein

Vivid Economics

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Grafton Place
London, NW1 2DX
United Kingdom

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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