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Annuity Values in Defined Contribution Retirement Systems: The Case of Singapore and Australia

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  • Suzanne Doyle
  • Olivia S. Mitchell
  • John Piggott

Abstract

In this paper we derive and compare the value of life annuity products in an international context. Our specific goal is to assess the money's worth and adverse selection impact of annuities in two countries Singapore and Australia that have mandatory DC-type retirement plans. This similarity in plan type is offset by differences in the two countries' national retirement policies. Our comparison therefore exploits the natural experiment in annuity pricing and purchase behaviour under alternative retirement regimes. The results show that after controlling on administrative loadings, there appear to be important differences in measured adverse selection across countries. Specifically, selection appears to be far stronger in the presence of a generous public benefit scheme that provides a first line of defence against the risk of old-age poverty.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8091.

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Date of creation: Jan 2001
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Publication status: published as Doyle, Suzanne, Olivia S. Mitchell and John Piggott. "Annuity Values In Defined Contribution Retirement Systems: Australia And Singapore Compared," Australian Economic Review, 2004, v37(4,Dec), 402-416.
Handle: RePEc:nbr:nberwo:8091

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  1. Asher, Mukul G., 1999. "The pension system in Singapore," Social Protection Discussion Papers 20848, The World Bank.
  2. Jeffrey R. Brown & Olivia S. Mitchell & James M. Poterba, 2000. "Mortality Risk, Inflation Risk, and Annuity Products," NBER Working Papers 7812, National Bureau of Economic Research, Inc.
  3. Benjamin M. Friedman & Mark Warshawsky, 1988. "Annuity Prices and Saving Behavior in the United States," NBER Chapters, in: Pensions in the U.S. Economy, pages 53-84 National Bureau of Economic Research, Inc.
  4. Bodie, Zvi, 1990. "Pensions as Retirement Income Insurance," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 28-49, March.
  5. Amy Finkelstein & James Poterba, 1999. "Selection Effects in the Market for Individual Annuities: New Evidence from the United Kingdom," NBER Working Papers 7168, National Bureau of Economic Research, Inc.
  6. Olivia S. Mitchell, 1999. "New Evidence on the Money's Worth of Individual Annuities," American Economic Review, American Economic Association, American Economic Association, vol. 89(5), pages 1299-1318, December.
  7. Jeffrey R. Brown & Olivia S. Mitchell & James M. Poterba, 1999. "The Role of Real Annuities and Indexed Bonds in an Individual Accounts Retirement Program," NBER Working Papers 7005, National Bureau of Economic Research, Inc.
  8. Steven F. Venti & David A. Wise, 1986. "IRAs and Saving," NBER Working Papers 1879, National Bureau of Economic Research, Inc.
    • Steven F. Venti & David A. Wise, 1987. "IRAs and Saving," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 7-52 National Bureau of Economic Research, Inc.
  9. Zvi Bodie & John B. Shoven & David A. Wise, 1988. "Pensions in the U.S. Economy," NBER Books, National Bureau of Economic Research, Inc, number bodi88-1, October.
  10. Bateman,Hazel & Kingston,Geoffrey & Piggott,John, 2001. "Forced Saving," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521481625.
  11. Benjamin M. Friedman & Mark Warshawsky, 1985. "Annuity Prices and Saving Behavior in the United States," NBER Working Papers 1683, National Bureau of Economic Research, Inc.
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Cited by:
  1. Richter, Andreas & Ruß, Jochen, 2001. "Tax arbitrage in the German insurance market," Working Papers on Risk and Insurance 5, University of Hamburg, Institute for Risk and Insurance.
  2. Olivia S. Mitchell & David McCarthy, 2002. "Annuities for an Ageing World," NBER Working Papers 9092, National Bureau of Economic Research, Inc.
  3. James M. Poterba, 2001. "Annuity markets and retirement security," Fiscal Studies, Institute for Fiscal Studies, vol. 22(3), pages 249-270., September.
  4. Palacios, Robert & Sluchynsky, Oleksiy, 2006. "Social pensions Part I : their role in the overall pension system," Social Protection Discussion Papers 36237, The World Bank.
  5. Impavido, Gregorio & Thorburn, Craig & Wadsworth, Mike, 2004. "A conceptual framework for retirement products : Risk sharing arrangements between providers and retirees," Policy Research Working Paper Series 3208, The World Bank.
  6. Bateman, Hazel, 2002. "Retirement Income Strategy in Australia," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, Queensland University of Technology (QUT), School of Economics and Finance, vol. 32(1), pages 49-70, March.
  7. Olivia S. Mitchell, 2001. "Developments in Decumulation: The Role of Annuity Products in Financing Retirement," NBER Working Papers 8567, National Bureau of Economic Research, Inc.

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