Correspondence: Alistair Byrne, University of Edinburgh Business School, 50 George Square, Edinburgh EH8 9JY, UK. E-mail: alistair.byrne@ed.ac.uk

¹is a senior lecturer in finance at the University of Edinburgh Business School, and a Fellow of the Pensions Institute at Cass Business School London. His research and consulting interests focus on pension fund investment and pension scheme design.

²is a Client Director at Aberdeen Asset Managers, where she primarily manages relationships with clients with fixed interest and Liability Driven Investment mandates. She chairs the Society of Pension Consultants' Investment Sub-Committee and is an active member of other industry forums.

Received 26 November 2008; Revised 26 November 2008.

Abstract

Increasing life expectancy is a positive trend for society that creates funding issues for pension schemes. This paper reports the results of a survey of 76 major UK pension schemes on their perceptions about longevity risk and the practicality of the solutions open to them for managing the risk. The schemes in the survey perceive longevity as the second biggest risk they face after investment risk. They are relatively optimistic about the trends in life expectancy, expecting medical advances to continue extending lifespans. However, they continue to use in valuations mortality assumptions that predict a slowdown in longevity improvements. The schemes report relatively high levels of awareness of the main methods of managing longevity risk, but few have implemented these methods. The main barriers to effective management of longevity risk are noted to be complexity, cost and lack of suitable products. Buy-out transactions, in particular, are perceived as expensive by many schemes.