GAD income drawdown rates - large change ?

"Daytona" wrote

MORTALITY ( probably! )

But a change of this magnitude, to me, indicates an error somewhere, hence my question. Is this within the range of normal movement when these tables are updated each year ? It appears to be an across the board change to all ages and sexes.

Daytona

The previous drawdown tables weren't updated for ages - I think since 1991 or 1996 (can't remember which). They certainly weren't updated annually. Apart from using updated mortality tables, I think that annuity providers in the market are being more conservative, and the new GAD rates may simply reflect this.

The figures look about right to me - I checked them using standard mortality rates for an interest rate of 4.75%, taking the sort of margins I would expect an insurance company to take at the moment, and the figures look about right.

Have you checked the new rates against the FSA's annuity tables?

No, it just reflects how badly we estimated what the mortality improvements over the last few years (5-10ish) were going to be!

[In other words, it reflects the actual large improvement in mortality rates, which wasn't expected.]

See GB's comment.

All mortality rates have improved more than expected - although male rates have spectacularly improved!

"GB" wrote

Did you use one/more of the latest (now adopted) '00' series tables?

The GAD site shows that their new rates are based on mortality PMA92 / PFA92 (U 08). Arguably, they didn't go far enough - did they?

Np, I'm still stuck on the 92 series with the cohort adjustments.

I used PMA92 MC (U 06) with a 0.5% margin in the interest rate compared to gilt rates. That gave me an answer that was close enough to the GAD figures that I felt reasonably comfortable with them.

Equitable are using something like 75% of PMA 92 MC (U= 2008) for their statutory returns for their with profits annuitants. On the other hand, most of their customers were in the top one or two socio-economic groups.

I'm not sure how many people actually use the 00 series tables at the moment. It will be interesting to see if they start appearing in the 2006 statutory returns. Funnily enough, when I looked at the 00 series, they were slightly heavier (at least at the ages I was looking at) than the MC version of the 92 series. An odd result, considering the press release that was put out at the time.

If GAD are not using the MC tables, then I agree they may have not gone far enough.

Bloody hell - this has all completely passed me by..... I'd just assumed that there was a steady improvement.

My incorrect assumption.

Hmmmm methinks we live in ever move 'interesting times' ! -

"Kevin Wesbroom, principal consultant at Hewitt Associates, the actuarial consultancy, said that the admission was not a mere technical point. ?If the FTSE 100 companies assumed that people will live two years longer, their pension deficits would increase by around £20 billion,? he said.

The new tables, called the 00 Series, look at mortality rates between

1999 and 2002. The previous tables, the 92 Series, were based on death rates for 1991 to 1994. The 00 Series showed that 12.85 men of every 1,000 aged 65 would die that year; the 92 Series put the figure at 18.12, meaning mortality rates had improved in that period by 29 per cent."

Poor, poor insurance companies !

Thanks for the explanation, sobering stuff.

Daytona

"GB" wrote

Odd indeed! - What projection did you apply to the '00' base rates? Eg did you apply MC to them?

"GB" wrote

I must admit, I was thinking here more of the difference in base rates than in the particular projection used...

"Daytona" wrote

The CMI's projections do have a history of under-estimating improvements, but just recently actual improvements have been unusually spectacular. Perhaps that's why the CMI bureau isn't actually publishing "standard" projections this time - leaving it up to individual actuaries to determine appropriate improving rates!

"Daytona" wrote

No problem!

None. I was comparing them for C 00. It's a while since I did that, so my recollection is a bit hazy.