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Mandatory pension savings and the insurance value of annuities

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  • Andersen, Torben M.

Abstract

Mandated pension schemes not only address the problem of undersaving but also typically offer annuities for the decumulation phase. These annuities perform a market maker function when, due to market failures, annuities are either unavailable or priced far from the actuarially fair benchmark. These annuities are intramarginal to the individual, and their insurance value is shown to be determined by a simple metric: the net present value of the payment flow discounted at the return on standard saving vehicles. The marginal and average values are identical, and the ex-ante value of the annuity is independent of individual preferences and survival probabilities.

Suggested Citation

  • Andersen, Torben M., 2025. "Mandatory pension savings and the insurance value of annuities," Economics Letters, Elsevier, vol. 256(C).
    • Handle: RePEc:eee:ecolet:v:256:y:2025:i:c:s0165176525004112
    DOI: 10.1016/j.econlet.2025.112574
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    References listed on IDEAS

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    More about this item

    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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