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Longevity Risk

As the pensions world transitions into one dominated by Defined Contribution (DC) provision, individuals are responsible for managing a range of risks that have traditionally sat with their employer. The IFoA has identified longevity risk as perhaps the most complex risk that has been transferred from employer to individual.

Even individuals with a good grasp of their chances of living to advanced ages can never know exactly how long they will live. They therefore risk under or over estimating how much retirement provision they will need to see them through their later life, resulting in either running out of money or living an unnecessary poor quality of life. With Freedom and Choice enabling individuals to access their savings more easily, this risk is further exacerbated.

Our 2015 policy summary on Longevity risk sets out the issue and identifies five principles for mitigating longevity risk:

Five principles for mitigating longevity risk: adequacy; information; flexibility; equity; sustainability.

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