Abstract
AbstractA new stream of research proposes how people can increase their income in retirement by pooling their mortality risk. How one of these mortality risk-sharing rules could be implemented in practice, as part of a retirement income scheme, is considered. A potential advantage of the scheme is that a retiree’s housing wealth can be monetised to provide an income stream. This would mean that retirees can continue living in their home, without needing to downsize. It may be most attractive to the millions of single pensioners, particularly those who are “asset-rich and cash-poor”. Other types of assets that could be included and how to mitigate selection risks are assessed. A way of smoothing the raw mortality credits in order to make the scheme more appealing to potential members is proposed. An illustrative premium calculation suggests that the cost of the smoothing is very small compared to the potential attractiveness of an enhanced, smoothed income.
Highlights
The problems facing ageing individuals and societies as the baby boom generation reaches retirement are well known and well documented:∙ The United Kingdom has a savings gap that has grown worse over time
Looking at pension scheme membership, the proportion of employees in workplace pension schemes fell from 55% in 1997 to 46% in 2012, with defined-benefit pension scheme membership falling from 46% to 28% in the same period (Office for National Statistics, 2013, page 11)
∙ requires members to join for 10 years to reduce selection risk; ∙ allows both housing wealth and investment fund assets; ∙ allows house sales and purchases; and ∙ allows income withdrawal from investment fund assets that are in excess of the mortality credits
Summary
The problems facing ageing individuals and societies as the baby boom generation reaches retirement are well known and well documented:. Deloitte (2010) estimate that there is €379 billion a year difference between the pension provision that people retiring between 2011 and 2051 in the United Kingdom will need, and the pension amount that they can expect to receive This is further shown by the UK’s savings ratio which fell from over 10% in 1992 to
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