Joelle H. Fong

Longevity Risk Management in Singapore’s National Pension System

Although annuities are a theoretically appealing way to manage longevity risk, in the real world relatively few consumers purchase them at retirement. To counteract the possibility of retirees outliving their assets, Singapore’s Central Provident Fund, a national defined contribution pension scheme, has recently mandated annuitization of workers’ retirement assets. More significantly, the government has entered the insurance market as a public-sector provider for such annuities. This paper evaluates the money’s worth of life annuities and discusses the impact of the government mandate and its role as an annuity provider on the insurance market.

Disaggregating Activities of Daily Living Limitations for Predicting Nursing Home Admission

OBJECTIVEnTo examine whether disaggregated activities of daily living (ADL) limitations better predict the risk of nursing home admission compared to conventionally used ADL disability counts.nnnDATA SOURCESnWe used panel data from the Health and Retirement Study (HRS) for years 1998-2010. The HRS is a nationally representative survey of adults older than 50 years (n = 18,801).nnnSTUDY DESIGNnWe fitted Cox regressions in a continuous time survival model with age at first nursing home admission as the outcome. Time-varying ADL disability types were the key explanatory variables.nnnPRINCIPAL FINDINGSnOf the six ADL limitations, bathing difficulty emerged as the strongest predictor of subsequent nursing home placement across cohorts. Eating and dressing limitations were also influential in driving admissions among more recent cohorts. Using simple ADL counts for analysis yielded similar adjusted R(2) s; however, the amount of explained variance doubled when we allowed the ADL disability measures to time-vary rather than remain static.nnnCONCLUSIONSnLooking beyond simple ADL counts can provide health professionals insights into which specific disability types trigger long-term nursing home use. Functional disabilities measured closer in time carry more prognostic power than static measures.

Investment Patterns in Singapore's Central Provident Fund System

Rising elderly life expectancies imply the need to accumulate sufficient savings for retirement. This paper investigates the role of recent changes in the investment menu in helping workers grow their saving in the Singaporean Central Provident Fund (CPF) system. Our research explores the investment patterns of CPF participants and articulates their implications for policymakers. We find that most investors use their money for housing purchase and default the remainder to the CPF investment pool. The bulk of non-housing saving sits uninvested in bank accounts paying a low return. A fraction of workers does elect outside investment products, with high-income earners and males tending to take more risk than low-income earners and females. Since workers who default their money to the CPF fund receive a guaranteed 2.5% return on the Ordinary Account and 4% on the Special Account, hurdle rates for money market and equity funds are substantial. These high hurdle rates help explain why few CPF account holders invest outside the default government investment pool, though inertia probably explains why many employees let their funds sit in bank accounts earning low interest rates.

Product Pricing and Solvency Capital Requirements for Long-Term Care Insurance

This paper presents a comprehensive assessment of premiums, reserves and solvency capital requirements (SCRs) for long-term care (LTC) insurance policies using Activities of Daily Living and US data. We compare stand-alone policies, whole life insurance policies with LTC benefit riders (LTC insurance combined with whole life insurance), life care annuities (LTC insurance combined with annuities) and shared LTC insurance in terms of net premium cost and SCRs. Net premiums and best-estimate reserves for base LTC insurance policies are determined using Thiele’s differential equation. Product features such as the elimination period and the maximum benefit period are compared using a simulation-based model. We show how a maximum benefit period can reduce costs and risks for LTC insurance products. SCRs for longevity risk and disability risk are based on the Solvency II standard formula. We quantify the extent to which whole life insurance policies with LTC benefit riders and life care annuities provide lower S...

Patterns of Functional Disability in the Oldest Adults in China.

This study examined patterns of onset of activity of daily living (ADL) disability in a nationally representative sample of older adults in mainland China. Using longitudinal data from the Chinese Longitudinal Healthy Longevity Survey from 1998 to 2008 (N = 5,570), nonparametric methods were used to evaluate median age at onset of various ADL disabilities and differences in the incidence of disabilities according to sex. The sampled older Chinese adults developed ADL disabilities, on average, between the ages of 89 and 94. Women were likely to experience later onset than men. The results also show that the oldest adults generally lose bathing ability, followed by toileting, transferring, dressing, eating, and finally, continence. This order—derived from estimated median age at onset—was also found to be highly prevalent in subsequently disabled respondents in the sample. The disability experience of older adults in China is somewhat similar to that of older adults in Western developed countries; elderly adults tend to lose ability in activities that require lower extremity strength earlier than those that require upper extremity strength. The relative importance of the various ADL items in the hierarchical ordering has implications for early intervention to reduce the risk of functional disability in older adults and those at risk of transitions of care.

Longevity Selection and Liabilities in Public Sector Pension Funds

type=main xml:lang=en> This article assesses the cost and risk faced by public sector, defined benefit plan providers arising from uncertain mortality, including longevity selection, mortality improvements, and unexpected systematic shocks. Using longitudinal microdata on Australian pensioners, we quantify the extent of longevity selection at both aggregate and scheme level. We also show that as the age-membership structure in a pension scheme matures, scheme-specific longevity selection risk and systematic shocks become quantitatively more important and have larger consequences for plan liabilities than aggregate selection risk or the impact of mortality improvements.

Forecasting disability: application of a frailty model

Random changes in individual frailty occur due to the stochastic processes of physical deterioration or environmental influences. This paper implements a stochastic ageing model using maximum likelihood methods and calibrates the model to more than 30 years of historical Australian mortality data in order to examine cohort and gender differences in health-state distributions among older adults. We find that frailty levels have declined over time for both male and female cohorts. Nonetheless, patterns of frailty are different between genders. Older females experience a faster pace of health deterioration than their male counterparts causing them to move quicker into worse states of health. Health states are also more heterogeneous among women than men. Population-level estimates suggest that the number of elderly Australians requiring aged care services will exceed that projected under governmental assumptions by 2050.

Public Sector Pension Funds in Australia: Longevity Selection and Liabilities

This paper assesses the cost and risk faced by public sector, defined benefit plan providers arising from uncertain mortality, including longevity selection, mortality improvements, and unexpected systematic shocks. Using longitudinal micro data on Australian pensioners, we quantify the extent of longevity selection at both aggregate and scheme level. We also show that as the age-membership structure in a pension scheme matures, scheme-specific longevity selection risk and systematic shocks become quantitatively more important and have larger consequences for plan liabilities than aggregate selection risk or the impact of mortality improvements.