KPMG adopts longevity projection model
KPMG has introduced a longevity projection model used by insurers to help improve its understanding of the future risks of defined benefit (DB) pension schemes.
The model, developed by risk management solutions company RMS, is aimed at enhancing KPMG's de-risking practice by quantifying the information it uses. This includes producing improved cost predictions for longevity swaps, longevity risk and mortality assumptions and also aid medically underwritten mortality studies.
The model, which was originally developed for the life insurance and reinsurance sectors, provides simulations of future life expectancy scenarios based on analysis.
In contrast to actuarial models, it looks into a realistic future, anticipating potential drivers of longer lifespans in the years to come such as healthier lifestyles and medical breakthroughs.
It explores the root causes of longevity and analyses how it may improve by taking into account five main factors. These include lifestyle trends of scheme members, health provision, health services such as the National Health Services, medical treatments and advancements, as well as anti-aging science.
KPMG said this would enable it to gauge the risk these advances might pose to the funding levels of pension schemes and project more realistic trajectories of future longevity.
Predicting future mortality rates is an increasing challenge for sponsoring employers managing their ability to pay pensions due to members who are retired or will reach retirement in the medium to long term.
KPMG pensions director Tom Seecharan said: "Our clients are used to getting an understanding of the possible future risks to their DB pension schemes posed by variations in factors such as interest rates and inflation.
"However, the longevity model allows them to more fully understand the risk posed by potential changes in longevity too based on independent analytics developed for the insurance industry."
The consultancy carried out a medically underwritten study last year for Johnston Press to identify the current health of a sample group of existing members, leading to a large reduction in the scheme's liabilities.
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