New mortality tables ease pension funding
AUSTRIA - Mortality updates issued by the Austrian actuary association AVÖ show a slight increase in longevity but financing pensions will be cheaper than expected confirms ÖPAG Pensionskasse.
The longevity of Austrians in the age bracket of 60 to 65 has increased by 1.5 to 2 years since the last update of the mortality tables ten years ago.
"That was expected and it shows that our earlier estimates have been quite accurate," Helmut Holzer, vice-president of the AVÖ, explained to IPE.
What the pension industry did not expect was the steep drop of 20% in the probability of people still being married when they die.
As many pension benefits granted by companies and Pensionskassen include a provision for widows and widowers, the rising number of pension fund members who die unmarried makes financing their retirement cheaper.
So while the AVÖ calculated an increase in necessary funding for pension liabilities in Austria by 3.5% to 4% because of increased longevity, this figure is halved to 1.5% to 2% by the fact that fewer people will be receiving survivors' pensions.
"For some men over 90 financing their pension will even become a bit cheaper," noted Hartwig Sorger, actuary at the €1.9bn ÖPAG multi-employer Pensionskasse who is also working for several company pension funds.
He confirmed that the changes in the "marriage probability" were higher than expected.
For ÖPAG he calculated a necessary increase in funding because of higher longevity of around 5% for women and contracts which are not using the standard mortality tables but have individual provisions for survivors.
For the majority of members, however, the increase in funding will be well below 5% and the additional money needed can be raised over a ten-year period which means that the actual increase will only be up to 0.5% per annum at most.
Sorger added the possibility of including unmarried partners into pension fund contracts was not yet widely used and did therefore not balance out the drop in marriage figures.
"The problem is that as yet there is no legislation on how to end a non-marriage relationship," he explained.
Dealing with joint pension benefits in case of a split-up could therefore become very complicated and would most likely end in court.
"Many companies who offer occupational pensions are cautious about allowing partners to be included in pension benefits," said Sorger.
The new president of the AVÖ, Christoph Krischanitz, who recently took over from Helmut Holzer, noted in a press release that this year longevity will not be the only factor to affect occupational pension benefits negatively.
"High inflation rates, low returns from the capital markets and the uncertainty about future interest rate developments already make 2008 a difficult year for occupational pension provision," said the head of actuarial consultancy artithmetica.