The Cost of Retirement Income Provision: Some Quantitative Insights in Life Insurance

Humanity has observed remarkable improvements in life expectancy at birth. These improvements imply a greater longevity risk in the life insurance field, for pension systems and for the individuals involved in retirement planning. Our work aims to give sense of how longevity evolution reverberates into increasing costs for pension provision. We use the Lee-Carter model and the Human Mortality Database (HMD) data of six EU countries. We assess the dynamics of the price of a temporary life annuity, issued in different calendar years. With respect to the past, in all the countries under study, underwriting a life annuity is becoming progressively more expensive, with similarities between countries especially in relation to the cost of longevity risk protection for females.