Measuring the Impact of Longevity Risk on Pension Systems: The Case of Italy

Emilio Bisetti and Carlo Favero ()

No 439, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: This paper estimates the impact of longevity risk on pension systems by combining the prediction based on a Lee-Carter (1992) mortality model with the projected pension payments for different cohorts of retirees. We measure longevity risk by the difference between the upper bound of the total old-age pension expense and its mean estimate. This difference is as high as 4 per cent of annual GDP over the period 2040-2050. The impact of longevity risk is sizeably reduced by the introduction of indexation of retirement age to expected life at retirement. Our evidence speaks in favour of a market for longevity risk and calls for a closer scrutiny of the potential redistributive effects of longevity risk. Keywords: stochastic mortality, longevity risk, social security reform JEL Classification Numbers J11,J14

Date: 2012
New Economics Papers: this item is included in nep-age, nep-dem and nep-eur
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Journal Article: Measuring the Impact of Longevity Risk on Pension Systems: The Case of Italy (2014)
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