Annuity Prices, Money's Worth and Replacement Ratios: UK experience 1972 - 2002
In this paper we construct a time series of annuity prices from 1972-2002, and examine whether annuity rates are unfairly priced, and assess the extent to which annuitisation risks are hedged by stock market returns. We find no evidence that the average annuity rate is unfairly low. Depending on the assumptions about future longevity, the present value of an annuity (it's money's worth) is of the order of between 90 per cent and 100 per cent of the purchase price. Compared with the typical costs of buying financial services this figure looks suspiciously good. In addition, we find no reason to suggest that individuals are worse off by annuity rates being low, since this has been off-set by increases in the value of pension funds over the last thirty years. Even apart from the fact that people retiring today expect to live longer, their pension income (compared to their final salary) looks as good as ever.
|Date of creation:||Sep 2002|
|Contact details of provider:|| Postal: 2 Priory Road, Bristol, BS8 1TX|
Phone: 0117 33 10799
Fax: 0117 33 10705
Web page: http://www.bris.ac.uk/cmpo/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Banks, James & Blundell, Richard & Tanner, Sarah, 1998.
"Is There a Retirement-Savings Puzzle?,"
American Economic Review,
American Economic Association, vol. 88(4), pages 769-88, September.
- Cannon, Edmund & Tonks, Ian, 2004. "UK annuity price series, 1957 2002," Financial History Review, Cambridge University Press, vol. 11(02), pages 165-196, October.
- Brown, Jeffrey R. & Mitchell, Olivia S. & Poterba, James M. & Warshawsky, Mark J., 2001.
"The Role of Annuity Markets in Financing Retirement,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262025094, March.
- Brown, Jeffrey R. & Mitchell, Olivia S. & Poterba, James M. & Warshawsky, Mark J., 2001. "The Role of Annuity Markets in Financing Retirement," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262529130, March.
- Blundell, Richard & M. Stoker, Thomas, 1999.
"Consumption and the timing of income risk,"
European Economic Review,
Elsevier, vol. 43(3), pages 475-507, March.
- Miles, David, 1997. "A Household Level Study of the Determinants of Incomes and Consumption," Economic Journal, Royal Economic Society, vol. 107(440), pages 1-25, January.
- Amy Finkelstein & James Poterba, 2002. "Selection Effects in the United Kingdom Individual Annuities Market," Economic Journal, Royal Economic Society, vol. 112(476), pages 28-50, January.
- Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
When requesting a correction, please mention this item's handle: RePEc:bri:cmpowp:02/051. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.