Mercer ties with RMS for longevity model

Crystal ballMercer has selected RMS to provide modelling expertise on how medical advances will impact longevity.

The deal means Mercer’s pension risk management consultants will be able to use RMS modelling to quantify how future advances in medicine and medical procedures could impact people’s lifespans and how that will impact pension scheme liabilities.

RMS says its approach differs from typical longevity models that rely solely on projecting historical mortality trends into the future. It says its longevity model is forward-looking, using what it says are more realistic trajectories in life expectancy in the future. The model couples analysis of historical patterns with insight on potential drivers of longer lifespans such as medical breakthroughs in cancer treatment and healthier lifestyles.

Sofia Ben El Attar, director, LifeRisks at RMS says: “Pension schemes are increasingly looking to protect themselves from potential shortfalls in their funding levels and to do this they need realistic and detailed future longevity scenario analyses. Empowering our clients to understand longevity risk in real world terms and derive actionable insights for their pension scheme clients is one of the unique aspects of our Longevity Risk Model. It helps to underpin confidence among pension trustees and employers.”

Mercer principal Michael Kelly says: “As interest rates have declined, defined benefit pension liabilities have been become increasingly sensitive to rising life expectancy assumptions. In recent years many pension schemes and sponsors have taken steps to reduce their risk exposure to changes in their asset values, interest rates, inflation, and employer covenant. Life expectancy – or longevity – risk is thus growing in significance as an unhedged risk for many schemes and their sponsoring employers.”

Mercer principal Glyn Bradley says: “The more we can understand life expectancy risk the better we are able to deal with it. RMS’ longevity model increases that understanding by linking projected improvements in life expectancy directly back to real world events. It helps clients understand not just what might happen to life expectancy but why that might happen.”