Abstract

This paper describes the operation of both the compulsory pension annuity and voluntary annuity markets in the UK. The paper reports on the movement of UK annuity price quotes in the voluntary market from 1957-2009, and in the pension annuity market from 1994 to 2009, and examines whether annuities were fairly priced over this period. The paper computes the money’s worth of annuities, and finds that on average the money’s worth in the voluntary market over the sample period for 65-year old males has been a very high 98%. In the larger compulsory pension annuity over a shorter sample period we estimate that the money’s worth for 65-year old males has been 89%, and for 65-year old females has been a similar but slightly larger 90%. Taking into account load factors associated with annuity contracts and in comparison with other financial and insurance products this implies that annuities are fairly priced. However the value of the money’s worth is sensitive to the assumptions made about life expectancy, and we explain the assumptions made about the appropriate life tables to apply to annuitants in these annuity markets. There is some evidence that money’s worth has fallen since 2002. We discuss a number of factors that could have effected the fall in money’s worth, including: changes in insurance regulation; changes in industrial concentration; an insurance cycle; pricing of mortality uncertainty and the growth in the impaired lives market.

Full Text
Paper version not known

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.