The benefits provided by (conventional) life annuity and pension products imply “guarantees” to annuitants and hence risks borne by the annuity provider, that is, the insurance company or the pension fund. Risks inherent in guarantees have clearly emerged in recent and current scenarios, in particular because of volatility in financial markets and trends in mortality / longevity, provided that the amount of benefits is guaranteed whatever the investment yield and the experienced mortality may be.

Appropriate risk management actions are then required: pricing, capital allocation, (traditional) reinsurance, alternative risk transfers. Innovative product designs can also be conceived, in particular as regards managing the longevity risk. In a conventional life annuity, the benefit is not linked to mortality / longevity experience, hence the annuity provider bears the risk of unanticipated mortality improvements, that is the non-diversifiable “aggregate” longevity risk (besides the “individual” longevity risk). However, non-conventional life annuities can be defined, aiming at linking, to some extent, the annuity benefit to the mortality experienced in the group of annuitants, and / or in the market of life annuities (or pensions) and / or in the population. This link implies sharing, between annuitants and annuity provider, the risk arising from experienced mortality.

Various approaches can be adopted in order to link annuity benefits to mortality experience, or to updated forecasts of future mortality trends. Interesting solutions have been proposed in the actuarial literature, and some arrangements have been adopted in the insurance and pension practice.

We propose a rather general model that aims at providing a unifying point of view from which several practicable schemes, sharing the common purpose of transferring part of the longevity risk to the annuitants, can be analyzed and compared. We only focus on the decumulation phase, assuming that an individual holds a given amount at a given time (e.g. at retirement), and that the amount itself is converted into an immediate life annuity.