Gotowa bibliografia na temat „Annuitisation”

AbstractIn many countries, governmental support for funded old-age programmes comes at the cost of at least partial mandatory annuitisation of accumulated assets in retirement. We survey regulatory frameworks for the payout phase of funded pension systems in seven European countries and the US and study the influence of mandatory annuitisation on the welfare of both rational and behaviourally influenced individuals using a dynamic life-cycle model. We show that mandatory immediate full annuitisation of retirement assets will reduce rational individuals’ certainty equivalent pension wealth by up to 54%. Softening the strict immediate annuitisation requirements along the line of regulatory realities in some of the surveyed countries reduces utility losses considerably. Behaviourally restricted individuals can benefit from full annuitisation at retirement, but generally they will also prefer more flexible regulation.

In this paper, we analyze the effects of population aging on economic growth and the environment in a two-period overlapping generations model of growth, aging, and the environment. We show that aging may be beneficial to economic growth and the environment under perfect annuitisation, while possibly harmful under imperfect annuitisation. We also discuss the implications of our results for environmental policy in an aging economy.

This issue features two original research articles, three issues & policy articles and a book review section. The lead article is by Geoffrey Kingston and Susan Thorp (University of New South Wales, Australia) and addresses the issue of Annuitization and asset allocation with HARA utility. One of the puzzles in retirement economics is why individuals do not choose to purchase annuities and Kingston and Thorp explore in detail a real options model in which individual preferences obey the broad class of hyperbolic absolute risk aversion utility. The theory of Real Options argues that people might want to delay annuitisation at relatively younger ages because the price of life annuities might improve and annuitisation is irreversible. However, Kingston and Thorp show that the implications of a Real Options approach varies across individuals considerably. For example, when individuals have a desired consumption floor as opposed to CRRA preferences, they are more likely to want to purchase annuities earlier than later. It would be interesting to see empirical tests done in this area to test the relatively new Real Options theory as it applies to irreversible personal financial decisions, such as annuitization.

This paper investigates the effect of recent regulatory changes to the compulsory annuitisation of tax-privileged pension savings, on the demand for annuities and other retirement products. We find that the demand for annuities has fallen by almost 75 per cent from its peak in 2012, and the demand for income drawdown products has increased. There is some evidence that people at younger ages and with smaller pension pots are choosing not to annuitise, and hence the average size of an annuity purchase has increased.

AbstractThe low demand for immediate annuities at retirement has been a long-standing puzzle. We show that a hyperbolic discount model can explain this behaviour and results in the attractiveness of long-term deferred annuities. With a set of benchmark assumptions, we find that retirees would be willing to pay a much higher price than the actuarial fair price for annuities with longer deferred periods. Moreover, if governments were to introduce a pre-commitment device which requires pensioners to make annuitisation decisions around 10 years before retirement, the take up rate of annuities could become higher.

AbstractWe develop a generalisation of the World Bank (1994) model of forced saving for retirement. This broader model consists of two tiers of second pillar savings – mandated and non-mandated (voluntary). Furthermore, the government can set two types of guarantees on the first (mandated) tier – investment returns and annuity prices – leading to possible cross-subsidisation between the tiers. This has the potential to induce social redistribution, foster a liquid private market for life annuities, and obviate some of the investment risk and annuity price risk that retirees face.We formulate a quantitative model of financial flows within such a system, which explains the mechanism by which cross-subsidisation occurs. Based on this analysis, a taxonomy of two-tiered retirement systems is presented, that is based on the choices that the government makes.

In this thesis, we investigate a pensioner’s gains from access to annuities. We observe a pensioner aged 65, having constant income from social security, having certain amount of pension wealth at age 65. The pensioner optimally decides each year how much of his available assets to consume, to invest into tradable assets, and how much to convert to annuities. Annuities are irreversible investments, once bought they provide income in the later years, but it is not possible to trade annuities any more. The pensioner makes optimal decisions such that the expected discounted utility from future consumption and bequest (if the pensioner has a bequest motive) is maximised. We develop and solve two models for the member of a defined contribution pension scheme in the post–retirement period. The first one is a two assets model with stochastic inflation. We refer to this model as the inflation risk model. The pensioner in the inflation risk model has access to risk less (cash) and risky (equity) investment and to nominal and/or real annuities. The solution of this type of problem using numerical mathematics is presented in detail. We investigate different constraints on annuitisation. The main results presented and analysed are the pensioner’s gains from access to certain class/classes of annuities, and also the pensioner’s optimal asset allocation and annuitisation strategies such that the maximised expected discounted utility from future consumption and bequest is attained. The second model for the pensioner in a defined contribution pension scheme is a three assets model with a stochastic interest rate. We refer to this model as the interest rate risk model. The pensioner in the interest rate risk model has access to risk less (one year bond), low risk (rolling bond with constant duration) and risky (equity) assets, and to annuities. Again, we precisely define the problem mathematically and solve it using numerical mathematics. We present and thoroughly analyse the pensioner’s optimal asset allocation and optimal annuitisation such that his expected discounted utility from consumption and bequest is maximised. Particularly, we investigate in detail the dependence of the results on the value of the interest rate during the year before retirement. After investigating the inflation risk model and interest rate risk model separately, we investigate deeper the new results obtained by introducing a stochastic interest rate. We compare the results obtained in the inflation risk model where the value of the interest rate is constant and the results in the interest rate risk model where the value of the interest rate changes. Particularly, in the interest rate risk model, we investigate deeper the dependence of the results on the value of the interest rate during the year before retirement and on the value of the interest rate during each year before annuitisation and asset allocation during the retirement period.

The ongoing shift from Defined Benefit (DB) pension plans to Defined Contribution (DC) pension plans in private sectors has transferred investment risk and longevity risk from pension providers to individuals. Professional advice on how to best generate retirement incomes from accumulated pension savings is therefore in great demand. A common solution is buying an immediate annuity; however the immediate annuity market has long been experiencing low demand. Another solution is following a safe drawdown rate during retirement; however this exposes retirees to the risk of outliving their pension savings. In recent years, behavioral factors have been successful in explaining individuals’ decision-making process, this thesis is therefore devoted to the investigation of the low demand of immediate annuities by considering behavioral models; and the use of annuity products in optimal decumulation strategy designs. This thesis has two major contributions. First, both Cumulative Prospect Theory (CPT) and Hyperbolic discount model can explain the low demand of immediate annuities and suggest that people would be willing to purchase deferred annuities. This has laid a research foundation for introducing and promoting the deferred annuity product. Second, we provide an optimal partial annuitisation strategy involving deferred annuities in a utility maximisation decumulation plan. In the proposed strategy the retirement period is divided into two stages: a stage where pensioners use their savings to cover their living expenses and a second stage where a payment stream from deferred annuities is available. This strategy effectively helps retirees manage the longevity risk at advanced ages and turns the drawdown plan from accumulated savings into an easier decision than before – because of a fixed rather than unknown drawdown period.

The aim of this thesis is to investigate how members of Australian superannuation funds can manage risks arising from uncertain security returns and unpredictable mortality so as to ensure a steady income stream during retirement. In chapter 2 we note that the proportion of superannuation assets invested in foreign assets has increased over the past two decades, exposing investors to currency risk. Surveys of superannuation funds verify that most international bond holdings, but not equity holdings, have been hedged for currency risk. We test the mean-variance efficiency of this practice against two alternative hedging strategies: a conventional forward hedge and a selective hedge conditioned on the domestic-foreign interest differential. Implementing optimal hedging results in portfolios whose returns stochastically dominate portfolios constructed under restricted equity hedging, according to our new adaptation of Barrett-Donald (2003) tests. Selective hedging works best for equities and conventional hedging for bonds. Chapter 3 applies a discrete-time Merton (1971) model to questions of optimal decumulation and asset allocation for self-funded retirees drawing down lump-sum retirement benefits. Risk management is taken to revolve around protecting a pre-specified minimum consumption stream. Risk tolerances and lifetimes are allowed to span a range of possibilities. In the case of an agent living to age 90, ideal investment in equity-type assets increases gradually from 27-43 % over remaining life. This is much lower than the 55-60% observed among retirees. Conservative investment strategies are needed to meet consumption goals over long lifetimes. Milevsky and Young (2002, 2003) attribute the reluctance to voluntarily annuitise to a valuable real option to delay annuitisation (RODA). Chapter 4 extends the RODA analysis to the case of HARA preferences. A formula for the optimal timing of annuitisation is derived from the solution to a dynamic stochastic consumption and investment problem with uncertain lifetime. The effect of introducing a consumption floor is to reduce the delay before annuity purchase. As in the CRRA case, delayed annuitisation is associated with optimistic predictions of the Sharpe ratio and divergence between annuity purchaser and provider predictions of mortality.