Life expectancy assumptions from the Royal Dutch Actuarial Association are “significantly higher” than possible alternative projections, analysis from LCP has found.

The research showed that, taking an approach more akin to the Continuous Mortality Investigation (CMI) model, widely used by actuaries in the UK, would make more allowance for the slow down in life expectancy gains seen in the last decade, and for the direct and indirect consequences of the Covid-19 pandemic.

Whilst this may sound like a technical point, LCP argued that this could have real world consequences for Dutch pension funds, and for the insurers and reinsurers active in the growing Dutch pension risk transfer market.

Indeed, according to LCP, life expectancy at age 65 differs by more than 5 per cent between the two models, meaning that Dutch pension funds could be overestimating their liabilities significantly.

Furthermore, LCP estimated that the value of the €20-30bn of Dutch pension scheme liabilities expected to be bought out by insurer by 2027 could differ by at least €500m depending on the model used.

LCP partner and head of longevity and demographic insights, Stuart McDonald, said: “Our analysis highlights that different underlying assumptions about the path of future mortality rates can be financially significant for pension funds and insurers.

“Pension funds should ensure that they any decisions on the value for money offered by buyouts use realistic mortality assumptions.

“With models from two well-respected actuarial bodies producing such different mortality projections, Dutch pension funds, insurers and reinsurers should consider which projection best represents their view of future mortality in the Netherlands.”

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