Defined terms for the annuity market and lifetime income landscape.
Mortality basis risk is the risk that an individual's actual mortality experience diverges from the average mortality assumption used by the pool or insurer underwriting their lifetime income arrangement.
Mortality drag is the cost of self-managing longevity risk — the reduction in sustainable lifetime payout rate that a self-managed portfolio incurs relative to a pooled equivalent, because the self-manager bears the full longevity tail and must reserve against living beyond the planning age.
Mortality improvement is the systematic decline in age-specific mortality rates over successive calendar years, observed across most developed-country populations over the past century and central to projecting future mortality experience.
A mortality improvement scale is a schedule of assumed year-over-year mortality decline at each age, applied to a base mortality table to project how the table's rates are expected to evolve in future calendar years.
Mortality pooling is the actuarial process by which the shares of pool resources that would have funded continued payments to members who die during the payment period are redistributed to survivors, allowing the pool to deliver higher per-survivor income than each member's contribution alone.
