By Edmund Cannon, Ian Tonks
The Pension difficulty matters the altering demographic profile of extra aged and less teens within the financial system. knowing and tackling this forthcoming situation is a key job for public coverage. An annuity protects somebody from outliving their discount rates, and is imperative to pensions coverage. This booklet examines the different sorts of annuities on hand, how those annuities are priced, the historical past of annuities, how annuities markets functionality: how they paintings, and are they effective. It offers a global comparability of annuity markets, and examines contemporary advancements in annuity markets.
Governments world wide are transferring their pension regulations clear of pay-as-you-go platforms in the direction of person discount rates schemes. those rate reductions have to be switched over right into a pension at retirement, and annuity markets supply this functionality. This e-book is a complete learn of annuity markets. The booklet starts off by way of outlining the context of public coverage in the direction of pensions coverage. It then explains the differing kinds of annuities to be had, targeting the USA and united kingdom, and the way those annuities are priced, reading pricing and booking tools from an actuarial viewpoint and in addition describing mortality dimension. the subsequent chapters describe the background of annuities, and the event of annuity markets in international locations except the united kingdom and US. The ebook then outlines the idea at the back of annuites, and explains how annuities insure shoppers opposed to sturdiness hazards. the following bankruptcy describes how annuities markets functionality: how they paintings, and whether or not they are effective, major onto a dialogue of the annuity puzzle. The booklet concludes via discussing fresh advancements in annuity markets.
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Extra resources for Annuity Markets
Annuity products have been in existence since Roman times, and in Chapter 3 we document the historical development of annuity markets, and discuss 16 Introduction and the context of annuity markets the role of annuities in the UK’s pension system. The actuarial profession has developed to enable insurance companies to value life insurance products on a scientiﬁc basis, and in Chapter 4 we consider the methods used by actuaries to price annuities, and describe the measurement of life expectancy.
9. A ‘consol’ is a government bond paying a total annual coupons of between 21/2 and 31/2 per cent on a par value of £100, with no redemption date: in principle, the government is allowed to re-purchase the bonds (dependent on the market price and sometimes after giving notice), but it has never done so. Historically there have been several conversions involving changing the coupon rate and 41 Description of annuity markets 10. 11. 12. 13. 14. 15. 16. 17. 42 hence the effective par value, but the last of these was in 1888, and a consol is usually treated as a perpetual bond.
1). 4. Evidence on non-linear pricing: CPA rates, men, 65, December 2007. Relationship between annuity rate and purchase price for small purchase prices Source: FSA and authors’ own calculations. 5. Evidence on non-linear pricing: CPA rates, men, 65, December 2007. Relationship between annuity rate and purchase price for large purchase prices Source: FSA and authors’ own calculation. 14 For larger purchases the situation is quite different. Annuity rates appear independent of purchase price for most companies but Legal & General and Prudential offer much lower rates for larger purchases, suggesting a dislike for richer individuals who may be higher risk.