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