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Demographic drift

\ˌdɛməˈgræfɪk\ \drɪft\

The change in the types of people making up given population (such as the employees of a given company) over time.

Over time, businesses often shift the focus of their work, maybe through merger with another business with a different focus or maybe through the natural evolution of the market they work in. This means that the nature of their workforce can change over time. A good example would be a car manufacturing company which historically employed large numbers of manual workers, but now relies largely on robots operated by skilled engineers. The evolution of the types of people making up the workforce is called demographic drift.

Demographic drift can often affect the participants making up a pension plan and older participants can often have very different characteristics to younger participants. Relying on the mortality experience of older retirees to set a longevity assumption for younger retirees and current participants could lead to a material under- or overstatement of liabilities due to demographic drift.

Keep exploring our Lexicon of Longevity
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