Impact of asset modeling choices on lifetime pension pools

In this study, we compare the pattern of benefit payments of a lifetime pension pool following the framework of Piggott et al. (2005) under different risky asset models for homogeneous and heterogeneous membership profiles. The mortality experience of the lifetime pension pool is projected using the Lee–Carter model, and the investment return experience follows the lognormal, AR–GARCH, and RSLN models. We observe that the average benefit payments remain stable over time under all demographic assumptions, except for a hump in average benefits at older ages in a closed pool, coinciding with increased benefit volatility. In the long-term, the benefits show significant differences in upside and downside risk depending on the choice of investment models. Therefore, it is important for an actuary to consider different investment models when assessing and communicating benefit risk in lifetime pension pools.