Annuity MarketsThe Pension Crisis concerns the changing demographic profile of the economy: an increasing number of elderly persons supported by fewer young people. Governments around the world are responding to this impending crisis by shifting their pension policies away from pay-as-you-go systems towards individual savings schemes. These savings need to be converted into a pension at retirement, and annuities provide this function. This book is a comprehensive study of annuity markets. The book starts by outlining the context of public policy towards pensions, and explains the different types of annuities available, focusing on the UK which has the largest annuity market in the world. It examines how annuities are priced, and describes the techniques of mortality measurement. As a background, it provides a history of annuities, and the experience of annuity markets in a number of other countries. The book outlines the economic theory behind annuities, and explains how annuities insure consumers against longevity risks. It goes on to describes how annuities markets function: how they work, and whether they are efficient, leading onto a discussion of the annuity puzzle. The book concludes by discussing the regulatory framework, assets available to back annuity liabilities, and recent developments in annuity markets. |
Contents
| 1 | |
2 Description of annuity markets | 19 |
3 A short history of annuities | 43 |
4 Modelling life expectancy | 70 |
5 Annuity markets around the world | 95 |
6 Moneys worth calculations | 117 |
7 Annuity demand theory | 140 |
8 Reasons for the annuity puzzle | 180 |
9 Evidence on the workings of annuity markets | 210 |
10 Supply of annuities | 226 |
11 Conclusions | 259 |
Glossary | 266 |
| 268 | |
| 282 | |
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Common terms and phrases
actuarial actuarial notation adverse selection aged 65 agent annu annuity demand annuity market annuity payments annuity prices annuity products annuity providers annuity purchase annuity rates assets average bond yields budget constraint Cannon and Tonks capital cent Chapter compulsory annuities consume consumption path conventional annuity countries deferred annuity defined contribution demand for annuities discounting discussed equity estimate expected utility Finkelstein and Poterba government bond Hyperbolic Discounting income increase index-linked indifference curve insurance companies interest rate investment level annuities liabilities lives long cohort long-term longevity risk loss aversion low-risk individuals lump sum money’s worth Norwich Union occupational pensions pence pension fund pension schemes Pensions Commission percentage perfect annuity market period personal pension pillar policies population preferences premium private pension projections Prudential purchase annuities reinsurance relatively retirement risk aversion Scottish Widows selection effects Source suggest survival probabilities Table tontines UK’s utility function voluntary annuities