* OECD says capital markets could take on more risk
* Need to see more transparent, standard, liquid instruments
* Annuity providers need to use updated mortality tables (Adds detail from statement)
By Simon Jessop
LONDON, Dec 8 (Reuters) - The Organisation of Economic Cooperation and Development said on Monday it wanted to see stronger rules around the management of the risk of people living longer, and backed the creation of an index to better price it.
In its OECD Pensions Outlook 2014, the Paris-based group said issuing longevity bonds and publishing an index to serve as the benchmark for the pricing and risk assessment of hedges would support the development of longevity instruments.
"Capital markets could offer additional capacity for mitigating longevity risk, but the transparency, standardization and liquidity of instruments to hedge this risk need to be facilitated," the OECD said in a statement.
"The regulatory framework will also need to reflect the reduction of risk exposure these instruments offer by ensuring they are appropriately valued by accounting standards and lowering the level of required capital for entities hedging their longevity risk."
Regulators needed to ensure providers used regularly updated mortality tables, to reflect improvements in life expectancy, as failure to do so could result in a provision shortfall of well over 10 percent of the pension and annuity liabilities, it said. (Reporting by Simon Jessop; editing by Matt Scuffham)