By Edmund Cannon, Ian Tonks
The Pension predicament matters the altering demographic profile of extra aged and less youngsters within the economic climate. realizing and tackling this approaching predicament is a key activity for public coverage. An annuity protects someone from outliving their discount rates, and is critical to pensions coverage. This publication examines the different sorts of annuities on hand, how those annuities are priced, the heritage of annuities, how annuities markets functionality: how they paintings, and are they effective. It offers a global comparability of annuity markets, and examines fresh advancements in annuity markets.
Governments around the globe are transferring their pension rules clear of pay-as-you-go platforms in the direction of person discounts schemes. those mark downs must be switched over right into a pension at retirement, and annuity markets offer this functionality. This publication is a finished learn of annuity markets. The booklet starts off by way of outlining the context of public coverage in the direction of pensions coverage. It then explains the different sorts of annuities on hand, concentrating on the U.S. and united kingdom, and the way those annuities are priced, studying pricing and booking equipment from an actuarial point of view and likewise describing mortality dimension. the subsequent chapters describe the background of annuities, and the adventure of annuity markets in nations except the united kingdom and US. The ebook then outlines the speculation in the back of annuites, and explains how annuities insure shoppers opposed to durability hazards. the following bankruptcy describes how annuities markets functionality: how they paintings, and whether or not they are effective, top onto a dialogue of the annuity puzzle. The e-book concludes by means of discussing contemporary advancements in annuity markets.
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Additional info for Annuity Markets
Immediate (voluntary) annuity rates for men aged 65 Source: Cannon and Tonks (2004b). characteristics that annuity-providers condition on when quoting annuity prices, since life expectancy of women is higher than men, and of younger adults, of both sexes, is higher than older adults. 9 For 1972–2002 we plot the mean of the annuity series, but since there is some evidence that for 1957– 73 the mean is biased down by stale prices, we plot the median for the earlier period. 3. 4 for the two sub-periods and also for the period as a whole (the annuity series for 1957–2002 created by splicing the series together).
In Chapter 6, we explain the money’s worth calculation of annuities, and present evidence on the money’s worth in the UK and in other countries. While there is strong evidence to suggest that annuities are probably priced slightly higher than would be suggested by actuarial considerations, estimated markups (sometimes called loadings) do not seem excessive compared with the cost of other ﬁnancial services. There is little evidence to suggest that annuities are overpriced due to monopoly power. Yaari (1965) demonstrates that a risk-averse individual who is concerned about longevity risk (uncertain length of life) will always purchase actuarially-fair annuity contracts, enabling the individual to smooth consumption in every period of retirement.
Discrimination on grounds of race is not practised, although it is likely that blacks in the USA could gain better annuity rates, since their life expectancy is shorter. 4. It is true that it is fairly straightforward to extend the model in Chapter 7, to include the possibility that the agent gains utility from bequeathing wealth to someone else. However, the guarantee period is a very clumsy and risky way of ensuring a bequest (since it is more likely than not that the annuitant will outlive the guarantee period).