Underestimated Life Expectancy as a Principal Risk to Commercial Pension Insurance System in the Czech Republic

Boris Burcin, Charles University, Prague
Tomas Kucera, Charles University, Prague

One of the basic parameters determining a lifelong pension size is a prognostic estimation of life expectancies at specific age levels. Quality of this estimation is crucial for competitive business policy design and system revenues. Pension funds of the Czech Republic represent over 2,7 millions so called additional (facultative commercial) pension insurance policies. They aspire to become one of new pension system pillars and take care for a part of obligatory contributions. However, when determining the size of lifelong pensions, their actuaries have to use period instead of cohort mortality indicators related to future or even past process empirical levels. Moreover, differential mortality of policyholders is neglected since the indicators refer to general population. The paper describe situation, analyze risks and provides estimates of expected financial losses for entire system. Necessary steps and improvements to avoid predicaments are proposed.