Abstract While trends in human longevity and volatile capital markets have verified the need for guaranteed income in retirement, existing literature on guaranteed contracts shows that such product designs can be costly. Pooled annuity products, where participants share mortality and investment risks and returns, offer a promising alternative to standard guaranteed products. However, challenges remain for pooled schemes, including highly volatile incomes, especially with significant equity investments. We introduce a pooled annuity product to provide pensioners with a lifetime income characterized by smooth investment returns. Our proposed design builds on the advantages of sharing mortality risk while incorporating equity investments with return smoothing mechanisms. Based on Australian data, we establish transparent and costless minimum guarantees on market returns using a zero-cost collar option which sets upper and lower bounds on market returns and constrains the fund value at any moment. The pension savings are divided into group-self annuitization (GSA) and smoothing accounts. The GSA account provides life-long retirement benefits, while the smoothing account adjusts the GSA benefits within specified bounds. Our method uses the smoothing account as part of the pooled savings, not backed up by the insurer, which helps to minimize guarantee costs through a zero-cost collar option. Results show that retirees face a trade-off regarding their annuity payouts: while smoothing can lead to more stable payments and reduced equity risk, it also means giving up upside gains to buy downside protection.
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