Meistaravörn við tækni- og verkfræðideild - Brynjar Elís Ákason
Modelling accrued pension liability using future mortality rates from the Lee-Carter model
On Wednesday June 5th at 16:00, Brynjar Elís Ákason will defend his 30 ECTS thesis in MSc Engineering Management. The title of the thesis is Modelling accrued pension liability using future mortality rates from the Lee-Carter model, and the lecture will be held in room M208. All welcome.
Student: Brynjar Elís Ákason
Supervisor: Sverrir Ólafsson
Examiner: Yngvi Harðarson
Summary – Project Description:
Understanding how liability will evolve into the future is vital for pension funds in order to gain insight into the fund's operation and to make informed decision on its behalf. Currently, accrued pension liability is estimated annually for each pension fund based on accrued benefits but future accrued liability is not estimated.
The goal of this thesis is firstly to apply the Lee-Carter model on the Icelandic population, using historical age-specific mortality rates to predict future age-specific mortality rates. Secondly, a liability model will be proposed which uses the results from the Lee-Carter model to estimate future accrued liability. As part of the liability model, an income model will be proposed to predict future income of a fund's members. Results from the Lee-Carter model show that life expectancy is expected to increase in the coming years. Results from the liability model suggest that the model's structure and methodology is rational and represents the real world to a reasonable degree. Additionally, comparing future liability estimation using the proposed model versus traditional methods shows that if future trends in life-expectancy are not taken into consideration, liability will be underestimated by over 2% in 2021 and just under 8% in 2037.
