George A. (Sandy) Mackenzie's Annuity Markets and Pension Reform PDF

By George A. (Sandy) Mackenzie

This ebook treats very important yet overlooked public coverage concerns: how should still distributions from person bills be regulated, and the way can the marketplace for inner most annuities functionality higher? It offers a entire survey of the problems that come up whilst members to person bills turn into eligible for distributions. It additionally addresses the questions of no matter if annuitization or different regulations on distributions will be needed, and if that is so, can the supply of annuities be privatized? Its analytical framework is appropriate to a vast diversity of nations. Given the diminishing value of public pensions around the globe, the becoming variety of the aged, and the expanding value of outlined contribution plans, the voluntary call for for personal annuities goes to develop. it will be significant that annuities be most economical and that the annuity industry be successfully regulated. The publication investigates either matters, and proposes reforms to reinforce the potency of the annuity marketplace.

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Extra info for Annuity Markets and Pension Reform

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The basic reason is again that a life annuity is a contingent security. The bond can generate a stream of income over a 30-year period that is payable to whomever owns the bond, including the holder’s estate, should she die before the bonds mature. The life annuity’s payments stop when the annuitant dies. In this second example, we have assumed that the potential annuitant knows that her maximum life span at age 65 will be 30 years. In practice, people cannot be certain how many years of life remain to them.

Income and life expectancy are correlated, so that this feature of the annuity market disadvantages the poor. Adverse selection is often fingered as the chief culprit behind small annuity markets. In fact, it is very difficult to know what effect the mitigation or elimination of adverse selection would have on the size of annuity markets. The premiums paid by the longer lived would rise, since they would no longer be partly subsidized by the premiums paid by the shorter lived. This would tend to reduce the former group’s demand.

Chapter 4 surveys the individual accounts reforms that have taken place around the world, starting with a detailed account of the Chilean reform, and then summarizing the key features of reforms elsewhere in Latin America, and in eastern and central Europe. It emphasizes reforms (the great majority) where participation in the individual accounts component of the public pension system is compulsory and focuses on the distributional phase. A good understanding of how an individual accounts system works is necessary for a proper appreciation of the issues that arise with distributions from individual accounts.

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