Hi, I didn't understand this example of defined ambition schemes under CH 5 - "Schemes where the retirement age is increased for future service in light of increasing longevity. In this case, the variable retirement age means that the post-retirement longevity risk is transferred from the employer to the member". Can anyone explain how post-retirement the longevity risk is transferred from the employer to the member. Thanks
With a fixed NRA as members live longer the Plan has to pay a pension for a longer period of time, all else being equal. Thus the cost to the employer increases. With an increasing NRA as longevity increases, all else being equal, the Plan does not necessarily pay out for a longer period. The member now has the longevity risk - they have they risk that longevity increases and thus the Plan increases the NRA and they receive pension for a shorter period than under the fixed NRA.
