This paper examines the impact of uncertainties in the future trends of mortality on annuity values in Singapore's compulsory purchase market. We document persistent population mortality improvement trends over the past few decades, which underscores the importance of longevity risk in this market. Using the money's worth framework, we find that the life annuities delivered expected payouts valued at 1.019–1.185 (0.973–1.170) per dollar of annuity premium for males (females). Even in a low mortality improvement scenario, the annuities provide an expected value exceeding 0.950. This suggests that participants in the national annuity pool have access to attractively priced annuities, regardless of sex, product, and premium invested.

We propose a new method for two-dimensional mortality modelling. Our approach smoothes the data set in the dimensions of cohort and age using Bayesian smoothing splines. The method allows the data set to be imbalanced, since more recent cohorts have fewer observations. We suggest an initial model for observed death rates, and an improved model which deals with the numbers of deaths directly. Unobserved death rates are estimated by smoothing the data with a suitable prior distribution. To assess the fit and plausibility of our models we perform model checks by introducing appropriate test quantities. We show that our final model fulfils nearly all requirements set for a good mortality model.