By Edmund Cannon, Ian Tonks
The Pension main issue issues the altering demographic profile of extra aged and less teens within the economic system. knowing and tackling this forthcoming concern is a key job for public coverage. An annuity protects someone from outliving their rate reductions, and is principal to pensions coverage. This booklet examines the different sorts of annuities to be had, how those annuities are priced, the historical past 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 all over the world are moving their pension rules clear of pay-as-you-go platforms in the direction of person reductions schemes. those discount rates must be switched over right into a pension at retirement, and annuity markets supply this functionality. This ebook is a entire learn of annuity markets. The ebook starts off by means of outlining the context of public coverage in the direction of pensions coverage. It then explains the different sorts of annuities to be had, concentrating on the U.S. and united kingdom, and the way those annuities are priced, reading pricing and booking equipment from an actuarial standpoint and in addition describing mortality dimension. the subsequent chapters describe the background of annuities, and the event of annuity markets in international locations except the united kingdom and US. The booklet then outlines the idea in the back of annuites, and explains how annuities insure shoppers opposed to toughness dangers. the following bankruptcy describes how annuities markets functionality: how they paintings, and whether or not they are effective, best onto a dialogue of the annuity puzzle. The publication concludes by means of discussing fresh advancements in annuity markets.
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Extra resources for Annuity Markets
Although the compulsory-purchase annuity market is both much larger and more interesting for government policy, it did not come to maturity until considerably later than 1957, and such a long run of data does not exist for the compulsory-purchase market. Finkelstein and Poterba (2002) compare the two markets in the year 2000. We know of no formal comparison over the earlier period of the 1980s and 1990s, but our informal analysis suggests that the variation of annuity rates in the two markets was similar.
An example of when this may be useful is when an individual moves to part-time working before retiring completely. Income Drawdown (or Phased Withdrawal) defers the purchase of an annuity, and instead generates an income by drawing from the fund itself. This facility allows pensioners to receive higher rates of return (since the fund can be invested in equity) and they could also beneﬁt from increases in annuity rates if interest rates rose. Of course, these higher expected rates of return are offset by the riskiness of the returns compared to the certainty of an annuity.
According to Stark (2002) over 70 per cent of purchased annuities are level annuities, so the series are reasonably representative: more importantly historical data are not available for any other types of annuity. The data were collected from a series of trade magazines such as Pensions World and Money Management for the later period and The Policy for the earlier period. 1 plots a series of ﬁve-year guaranteed annuity rates for men aged 60, 65, and 70, and for women aged 55, 60, and 65, over the period 1972–2007.