Advisors have a new tool to help plan sponsors more effectively understand a key long-term cost.
Advisors have a new weapon in their arsenal to help plan sponsors keep expectations for pension plan liabilities in line with rising Canadian life expectancy.
Aon Hewitt launched a new tool designed to help defined benefit pension plan sponsors more effectively understand one of the key components in the long-term cost of their plans: longevity.
The Aon Hewitt Longevity Model is a first-of-its-kind proprietary tool that uses location-based data to help Canadian pension plan sponsors develop a comprehensive, in-depth understanding of the likely life expectancies of plan participants, as well as the risks associated with those assumptions.
“For defined benefit pension plans, increasing longevity is a defining reality,” said William da Silva, Senior Partner, Retirement Practice, Aon Hewitt. “New mortality tables show that Canadians are living longer than previously expected, but that paints a very broad and general picture. Pension plan sponsors need a more in-depth and comprehensive understanding of the life expectancy of their own specific plan participants.”
Canadian life expectancy at age 65 has increased by about five years since the early 1970s, or a rate of more than a year a decade. There seems to be no evidence that this rate of increase is slowing down. As expectations for life expectancies rise, so do pension plan liabilities; in fact, a one-year increase in life expectancy at age 65 increase liabilities by approximately 3 per cent.
As well as allowing sponsors to set a realistic baseline longevity assumption, the model also provides a deep statistical understanding of longevity risk – the risk that participants will live longer than expected.
“For plan sponsors, longevity risk assessment should be an important step in all risk strategy discussions,” said Tom Ault, Aon Hewitt Risk Settlement Group leader, Canada. “The Canadian Model will be critical to those plans considering the complete settlement of liabilities, as well as those that are looking to insure against longevity risk or those that simply want to establish better long-term risk parameters.”
Aon Hewitt launched a new tool designed to help defined benefit pension plan sponsors more effectively understand one of the key components in the long-term cost of their plans: longevity.
The Aon Hewitt Longevity Model is a first-of-its-kind proprietary tool that uses location-based data to help Canadian pension plan sponsors develop a comprehensive, in-depth understanding of the likely life expectancies of plan participants, as well as the risks associated with those assumptions.
“For defined benefit pension plans, increasing longevity is a defining reality,” said William da Silva, Senior Partner, Retirement Practice, Aon Hewitt. “New mortality tables show that Canadians are living longer than previously expected, but that paints a very broad and general picture. Pension plan sponsors need a more in-depth and comprehensive understanding of the life expectancy of their own specific plan participants.”
Canadian life expectancy at age 65 has increased by about five years since the early 1970s, or a rate of more than a year a decade. There seems to be no evidence that this rate of increase is slowing down. As expectations for life expectancies rise, so do pension plan liabilities; in fact, a one-year increase in life expectancy at age 65 increase liabilities by approximately 3 per cent.
As well as allowing sponsors to set a realistic baseline longevity assumption, the model also provides a deep statistical understanding of longevity risk – the risk that participants will live longer than expected.
“For plan sponsors, longevity risk assessment should be an important step in all risk strategy discussions,” said Tom Ault, Aon Hewitt Risk Settlement Group leader, Canada. “The Canadian Model will be critical to those plans considering the complete settlement of liabilities, as well as those that are looking to insure against longevity risk or those that simply want to establish better long-term risk parameters.”
