Longevity and Liabilities: Bridging the Gap

Life expectancies are trending upward across the globe. And while greater longevity is a propitious development for humanity, longevity uncertainty also poses a material challenge to pension funding levels, as pensions are required to fund expected future liabilities.

A new report from PGIM, the global investment management business of Prudential Financial, Inc., examines this concern in detail. Longevity and Liabilities: Bridging the Gap highlights how longevity risk has often taken a backseat to investment and interest rate risk, and how misquantification of this risk can have undesirable consequences. As the report underscores, unmanaged longevity risk can worsen a plan’s risk profile, reduce its funded status and lead to unforeseen costs. What’s more, this risk is compounded by the “lower for longer” interest rate environment that has burdened plan sponsors with low discount rates.

The report further urges plan sponsors to incorporate these potential dynamics into their risk management processes, and recommends that plan sponsors measure and manage longevity, inflation and interest rate risk in an integrated framework.

This latest report builds on insights from A Silver Lining: The Investment Implications of an Aging World, an earlier PGIM paper that examines investment opportunities arising from an aging global population. PGIM is among the world’s top 10 asset managers with more than $1.2 trillion in assets under management.

To learn more about the global aging trend, explore PGIM’s insights here.

For more information on PGIM, please visit www.pgim.com.