Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Pensions Turn to Death Bonds

Posted by William Byrnes on September 8, 2011


It’s a given that most of us want to continue living as long as possible.  Exercising, eating healthy, and taking every precaution available to extend the gift of life to its limits. Nevertheless, even living a longer life is not exempt from the foreseeable strains it creates financially. Increasing life spans can create problems for pension funds and others that depend on us dying to keep their books balanced.

Pension funds are exposed to severe longevity risk. If pensioners live longer than expected, payouts from the funds could exceed the estimated cost of keeping the funds solvent. Worldwide, $17 trillion of pension funds – $23 trillion in assets – is exposed to longevity risk.

But the big banks—including Goldman Sachs, JPMorgan Chase, and Deustsche Bank—are coming to the rescue by packaging that longevity risk and selling it to investors; and they’re counting on investors being interested in wagering on your death.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of life insurance contracts in Advisor’s Journal, see IRS Guidance Provides Safe Harbor for Policies Maturing After Age 100 (CC 10-51).

For in-depth analysis of pension plans and other qualified employee plans, see Advisor’s Main Library: O – ERISA – FAQs.

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