Annuity Markets and Pension Reform

Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Dedication......Page 7
Contents......Page 9
List of Tables......Page 13
Acknowledgments......Page 15
ANNUITIES ANCIENT AND MODERN......Page 17
RENAISSANCE......Page 22
A GUIDE TO THE BOOK......Page 28
CHAPTER OUTLINE......Page 30
PART ONE......Page 35
PRIVATE ANNUITY MARKETS: AN INTERNATIONAL COMPARISON......Page 37
The Potential Attraction of Annuities......Page 44
Bequests and Precautionary Expenditure......Page 47
Tax-favored Competing Assets......Page 50
Reverse Mortgages......Page 52
The Public Pension System......Page 54
Lack of Understanding......Page 56
Adverse Selection and Moral Hazard......Page 57
A Simple Model......Page 59
Empirical Studies of Annuity Premiums......Page 61
THE INSURANCE VALUE OF ANNUITIES......Page 64
ANNUITIES AND ALTERNATIVE INVESTMENT STRATEGIES......Page 66
CONCLUSIONS......Page 71
INTRODUCTION......Page 74
MAJOR RISKS OF THE ANNUITY BUSINESS......Page 75
A SIMPLE MODEL OF FUNDING......Page 77
Incomplete or Short Maturity Spectrums......Page 78
More Risky Investments......Page 81
The Discount Rate......Page 84
Aggregate Mortality Risk......Page 86
Statistics and Statistical Issues......Page 88
Administrative and Marketing Expenses......Page 91
Price Variability and Price Competition......Page 93
CONCLUSIONS......Page 94
INTRODUCTION......Page 97
THE RATIONALE FOR REGULATION......Page 98
APPROACHES TO REGULATION......Page 101
THE REGULATION OF INVESTMENTS......Page 103
Valuation of Assets and Liabilities......Page 109
Solvency Evaluation......Page 110
Lessons from Recent Reforms in the United Kingdom......Page 115
PROTECTION OF ANNUITANTS IN THE EVENT OF THE FAILURE OF THE PROVIDER......Page 119
REGULATORY IMPLICATIONS OF THE GROWTH OF ANNUITY MARKETS: CONCLUSIONS......Page 120
Chile’s Individual Accounts System: Basic Features......Page 122
The Bono de Reconocimiento (Recognition Bond)......Page 127
Distributions for Retirement and Disability......Page 128
OTHER LATIN AMERICAN SYSTEMS......Page 135
EASTERN AND CENTRAL EUROPE......Page 140
SIMILARITIES AND DIFFERENCES BETWEEN LATIN AMERICA AND EUROPE......Page 144
PART TWO......Page 147
INTRODUCTION......Page 149
THE CASE FOR RESTRICTIONS ON WITHDRAWALS AND MANDATORY ANNUITIZATION......Page 150
REGULATION OF WITHDRAWALS FROM DEFINED CONTRIBUTION PLANS......Page 154
PUBLIC SECTOR VERSUS PRIVATE SECTOR PROVISION......Page 157
THE SCOPE FOR RESPECTING INDIVIDUAL PREFERENCES......Page 160
RULES TO DETERMINE THE EXTENT OF ANNUITIZATION......Page 162
THE CASE FOR EXEMPTIONS......Page 163
Indexed Annuities, or Real versus Nominally Fixed Payments......Page 165
Variable Annuities, or Fixed versus Variable Payments......Page 167
Phased Withdrawals......Page 168
Conclusions Regarding the Choice of the Form of Annuity......Page 169
Guarantees on the Balance of Individual Accounts......Page 170
Other Design Issues with Implications for the Social Safety Net......Page 172
Family and Disability Benefits......Page 173
Issues Related to Family Benefits and the Legal Status of Individual Accounts......Page 176
Premium Level......Page 179
Premium Variability......Page 181
PREMIUM DIFFERENTIATION......Page 183
GUARANTEES FOR ANNUITY PAYMENTS......Page 186
TAXATION OF ANNUITIES......Page 188
Educational Programs......Page 191
Procedures for Exceptions to Mandatory Annuitization......Page 192
Distributions before Retirement and Bequests......Page 193
Distributions after Retirement: How Much Annuitization?......Page 194
Distributions after Retirement: What Form of Annuity?......Page 195
Social Safety Net Issues: Family and Disability Benefits......Page 196
Premium Variability......Page 197
Premium Differentiation by Gender or Other Personal Characteristics......Page 198
Administrative Aspects......Page 199
PUBLIC VERSUS PRIVATE PROVISION: A SUMMING UP......Page 200
Addressing Informational Failures (Asymmetric Information)......Page 203
Measures to Avoid Systematic Bad Choices (Lessons from Behavioral Finance)......Page 205
Mitigating Adverse Selection......Page 206
Taxation......Page 207
General Regulatory Issues......Page 208
A TWO-PERIOD MODEL......Page 210
Bequests......Page 214
Life Insurance......Page 218
Lumpy Expenditure......Page 219
Competing Assets: Residential Investment......Page 221
Competing Assets: Risky Financial Assets......Page 222
Competition from the Public Pension System......Page 224
THE COST AND FUNDING OF ANNUITIES......Page 226
Nonmatching Receipts and Payments......Page 230
Funding with a Risky Asset......Page 232
ADVERSE SELECTION......Page 235
AN ASIDE ON THE TIMING OF ANNUITIZATION......Page 237
THE INSURANCE VALUE OF ANNUITIES......Page 238
A PARABLE......Page 241
REAL WORLD AGING PROBLEMS......Page 244
MACROECONOMIC ASPECTS OF AN INDIVIDUAL ACCOUNTS REFORM......Page 245
Glossary......Page 247
References......Page 251
Index......Page 260