Annuity Markets

The Pension Crisis concerns the changing demographic profile of more elderly and fewer young people in the economy. Understanding and tackling this impending crisis is a key task for public policy. An annuity protects an individual from outliving their savings, and is central to pensions policy. This book examines the different types of annuities available, how these annuities are priced, the history of annuities, how annuities markets function: how they work, and are they efficient. It provides an international comparison of annuity markets, and examines recent developments in annuity markets. Governments around the world are 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 annuity markets provide this function. This book is a comprehensive study of annuity markets. The book starts by outlining the context of public policy towards pensions policy. It then explains the different types of annuities available, focusing on the US and UK, and how these annuities are priced, examining pricing and reserving methods from an actuarial perspective and also describing mortality measurement. The next two chapters describe the history of annuities, and the experience of annuity markets in countries other than the UK and US. The book then outlines the theory behind annuites, and explains how annuities insure consumers against longevity risks. The next chapter 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 recent developments in annuity markets. Contents......Page 12 List of Figures......Page 15 List of Tables......Page 19 1. Introduction and the context of annuity markets......Page 22 1.1. Context of annuities within pensions policy......Page 23 1.2. Structure of the book......Page 37 2.1. Types of annuities......Page 40 2.2. Data on annuity rates......Page 48 2.2.1. Purchased life annuities (voluntary)......Page 49 2.2.2. Compulsory purchase annuities market......Page 56 3.1. Annuities from Classical Times up to the Middle Ages......Page 64 3.2. Annuities in the period of developing financial markets......Page 67 3.3. Annuities and UK pension provision since 1945......Page 74 3.4. Recent developments in UK financial markets......Page 85 4.1. Definitions, concepts, and actuarial notation......Page 91 4.2. Mortality data in the UK......Page 97 4.3. Patterns of mortality......Page 103 4.4. Projecting mortality in the future......Page 107 5. Annuity markets around the world......Page 116 5.1. Australia......Page 119 5.2. Chile......Page 121 5.3. Germany......Page 127 5.4. Italy......Page 128 5.5. Singapore......Page 130 5.6. Sweden......Page 132 5.7. Switzerland......Page 133 5.8. United States of America......Page 136 6. Money’s worth calculations......Page 138 6.1. Evidence on money’s worth of UK annuities......Page 139 6.2. Evidence on money’s worth in the UK’s compulsory annuities market......Page 143 6.3. Evidence on international money’s worth......Page 152 7. Annuity demand theory......Page 161 7.1. A simple model of annuity demand......Page 162 7.2. Annuitization and purchasing annuities......Page 169 7.3. Expected-utility maximization......Page 171 7.4. Risk aversion and the form of risk......Page 178 7.5. Exotic utility functions......Page 182 7.6. Solving expected utility models......Page 186 7.7. Numerical simulations......Page 191 8. Reasons for the annuity puzzle......Page 201 8.1. Social welfare payments and pre-annuitized wealth......Page 202 8.2. Investing in alternative assets or deferring annuitization......Page 205 8.3. The pattern of expenditure in retirement......Page 210 8.4. Theory of adverse selection in annuity markets......Page 213 8.4.1. The Eckstein–Eichenbaum–Peled approach......Page 214 8.4.2. The adverse selection models of Abel and Walliser......Page 217 8.5. Behavioural factors......Page 221 8.5.1. Cumulative prospect theory and loss aversion......Page 222 8.5.2. Framing effects......Page 225 8.5.3. Poor financial education......Page 227 9.1. Evidence on selection effects......Page 231 9.2. Evidence on the demand for annuities......Page 240 10. Supply of annuities......Page 247 10.1. Market shares of annuity business in the UK......Page 249 10.2.1. EU regulations and Solvency 2......Page 255 10.2.2. UK annuity regulation......Page 256 10.3. Managing interest rate risk and bond markets......Page 262 10.4. Managing longevity risk......Page 267 10.4.1. Longevity bonds......Page 269 10.4.2. Reinsurance and securitization......Page 270 10.4.3. Example of mortality securitization......Page 273 10.4.4. Mortality swaps......Page 277 11. Conclusions......Page 280 Glossary......Page 287 Bibliography......Page 289 A......Page 303 B......Page 304 C......Page 305 E......Page 306 F......Page 307 I......Page 308 L......Page 309 M......Page 310 P......Page 312 R......Page 313 S......Page 314 U......Page 315 Z......Page 316

The Pension Crisis concerns the changing demographic profile of more elderly and fewer young people in the economy. Understanding and tackling this impending crisis is a key task for public policy. An annuity protects an individual from outliving their savings, and is central to pensions policy. This book examines the different types of annuities available, how these annuities are priced, the history of annuities, how annuities markets function: how they work, and are they efficient. It provides an international comparison of annuity markets, and examines recent developments in annuity markets.

Governments around the world are 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 annuity markets provide this function. This book is a comprehensive study of annuity markets. The book starts by outlining the context of public policy towards pensions policy. It then explains the different types of annuities available, focusing on the US and UK, and how these annuities are priced, examining pricing and reserving methods from an actuarial perspective and also describing mortality measurement. The next two chapters describe the history of annuities, and the experience of annuity markets in countries other than the UK and US. The book then outlines the theory behind annuites, and explains how annuities insure consumers against longevity risks. The next chapter 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 recent developments in annuity markets.

The 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. The Pension Crisis concerns the changing demographic profile of the economy: an increasing number of elderly persons supported by fewer young people. Understanding and tackling this impending crisis is a key task for public policy. An annuity protects an individual from outliving their savings, and is central to pensions policy: this book explores the issues surrounding annuities. "Understanding and tackling the impending pension crisis is a key task for public policy. An annuity protects an individual from outliving their savings, and is central to pensions policy. This title explores the issues surrounding annuities."--[Source inconnue]