By Edmund Cannon, Ian Tonks
The Pension predicament issues the altering demographic profile of extra aged and less teens within the economic system. knowing and tackling this imminent obstacle is a key job for public coverage. An annuity protects anyone from outliving their mark downs, and is significant to pensions coverage. This ebook examines the differing kinds of annuities to be had, how those annuities are priced, the heritage of annuities, how annuities markets functionality: how they paintings, and are they effective. It presents a global comparability of annuity markets, and examines fresh advancements in annuity markets.
Governments all over the world are moving their pension guidelines clear of pay-as-you-go platforms in the direction of person reductions schemes. those discounts have to be switched over right into a pension at retirement, and annuity markets supply this functionality. This booklet is a finished examine of annuity markets. The e-book starts off via outlining the context of public coverage in the direction of pensions coverage. It then explains the different sorts of annuities on hand, targeting the USA and united kingdom, and the way those annuities are priced, studying pricing and booking tools from an actuarial viewpoint and in addition describing mortality dimension. the subsequent chapters describe the heritage of annuities, and the adventure of annuity markets in international locations except the united kingdom and US. The booklet then outlines the idea at the back of annuites, and explains how annuities insure shoppers opposed to sturdiness dangers. the subsequent 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 publication concludes by way of discussing fresh advancements in annuity markets.
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Extra resources for Annuity Markets
The annuity rates on guaranteed annuities always lie below non-guaranteed annuities, and the rates on index-linked annuities lie below those on nominal annuities. 7 is the extent to which the series move together. 8 reveals that the number of main annuity providers during this period has fallen signiﬁcantly: in 1994 Moneyfacts reports 23–5 quotes, but this falls to about 9 quotes by the end of the period. The FSA website also has reported about 9 or 10 annuity prices over the period 2005–07. It should be noted that some of the annuity providers only supply enhanced or similarly-restricted annuities, such as B&CE Insurance which supplies annuities to former construction workers.
Of course, these higher expected rates of return are offset by the riskiness of the returns compared to the certainty of an annuity. Because of the risk and also the administrative costs involved in setting up an Income Drawdown plan, the FSA recommends that this is only suitable for individuals with a pension fund of more than £100,000. HMRC sets maximum and minimum income that can be drawn down each year, and the amount withdrawn must be reviewed every three years to ensure that it will fall in the appropriate range.
The consol rate (as well as shorter rates, not illustrated here) was roughly the same in both 1957 and 2002, making comparison of the beginning and end of the period straightforward. Although consol rates were the same, annuity rates were lower in 2002 than in 1957. 10 In addition to the gradual trend of a narrowing gap between annuity and consol rates, there is also a temporary narrowing of the gap in the mid-1970s when all interest rates were high. The reason for this can be explained as follows: when interest rates are high the present value of future payments in the relatively distant future contribute very little to the total present value of an asset and most of the present value of the asset depends upon payments in the very near future.