Longevity Risk Versus Longevity Dividend

Abstract

Increased longevity means paying more for pensions, health care, and long-term care for the elderly. Many countries will be able to raise taxes enough to cover more than a fraction of the age wave’s total cost. That is more important longevity risk. Most countries will have to cut old-age benefits, but the required reductions are large and are likely to meet with resistance from aging people. On the other hand we can look for longevity dividend. An older working population facing an extended retirement period has a powerful incentive to accumulate assets to support themselves. The benefits gotten from a demographic transition is neither automatic nor guaranteed. The longevity dividend occurs as the result of the productivity of older adults which depends on tax incentives, health programs, and pension and retirement policies. The main aim of this paper is to look close for determinants of the longevity risk versus longevity dividend. We apply multivariate analysis to find out the most important risk factor. After selection of the European countries to the analysis and identification risk factors that could have influence on the longevity risk and longevity dividend using PCA, we define Index of Risk of Loss Longevity Dividend. Next by building appropriate econometric models based initially on variables relating to the problems identified and at the same time determining demographic processes. We applied PCA regression to observe defined Indexes of Risk of Loss Longevity Dividend for some given scenarios.