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The mechanics and regulation of variable payout annuities

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  • Vittas, Dimitri

Abstract

This paper discusses the mechanics and regulation of participating and unit-linked variable payout annuities. These annuities offer benefits that are not fixed in either nominal or real terms but depend on the performance of the fund or funds in which the underlying reserve assets are invested, their profit sharing features, and the treatment of longevity risk. The paper focuses on the treatment of investment and longevity risks by different types of these annuities and underscores the challenge of establishing a robust and effective framework of regulation and supervision for these products. The paper also addresses the exposure of annuitants to integrity risk and places special emphasis on the need for a high level of meaningful transparency.

Suggested Citation

  • Vittas, Dimitri, 2011. "The mechanics and regulation of variable payout annuities," Policy Research Working Paper Series 5762, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5762
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    References listed on IDEAS

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    1. Hans-Martin von Gaudecker & Carsten Weber, 2004. "Surprises in a Growing Market Niche: An Evaluation of the German Private Life Annuities Market," The Geneva Papers on Risk and Insurance, The International Association for the Study of Insurance Economics, vol. 29(3), pages 394-416, July.
    2. Mussio, Irene & Cardinale, Mirko, 2007. "Developing Annuities Markets: The Experience of Chile. Roberto Rocha and Craig Thorburn. The World Bank, 2006, ISBN 0-8213-6666-1, 288 pages," Journal of Pension Economics and Finance, Cambridge University Press, vol. 6(03), pages 354-356, November.
    3. Vittas, Dimitri & Impavido, Gregorio & O'Connor, Ronan, 2008. "Upgrading the investment policy framework of public pension funds," Policy Research Working Paper Series 4499, The World Bank.
    4. Valdes-Prieto, Salvador, 1998. "Risks in pensions and annuities : efficient designs," Social Protection and Labor Policy and Technical Notes 20847, The World Bank.
    5. John Ameriks & Andrew Caplin & Steven Laufer & Stijn Van Nieuwerburgh, 2007. "The Joy of Giving or Assisted Living? Using Strategic Surveys to Separate Bequest and Precautionary Motives," NBER Working Papers 13105, National Bureau of Economic Research, Inc.
    6. Grosen, Anders & Lochte Jorgensen, Peter, 2000. "Fair valuation of life insurance liabilities: The impact of interest rate guarantees, surrender options, and bonus policies," Insurance: Mathematics and Economics, Elsevier, vol. 26(1), pages 37-57, February.
    7. Blake, David, 2001. "The United Kingdom Pension System: Key Issues," Discussion Paper 15, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    8. John Ameriks & Andrew Caplin & Steven Laufer & Stijn Van Nieuwerburgh, 2011. "The Joy of Giving or Assisted Living? Using Strategic Surveys to Separate Public Care Aversion from Bequest Motives," Journal of Finance, American Finance Association, vol. 66(2), pages 519-561, April.
    9. Roberto Rocha & Dimitri Vittas & Heinz P. Rudolph, 2011. "Annuities and Other Retirement Products : Designing the Payout Phase," World Bank Publications, The World Bank, number 2272, April.
    10. Roberto Rocha & Craig Thorburn, 2007. "Developing Annuities Markets : The Experience of Chile," World Bank Publications, The World Bank, number 7162, April.
    11. Grosen, Anders & J Rgensen, Peter L Chte, 2002. "The bonus-crediting mechanism of Danish pension and life insurance companies: an empirical analysis," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(03), pages 249-268, November.
    12. Laura Ballotta & Steven Haberman & Nan Wang, 2006. "Guarantees in With-Profit and Unitized With-Profit Life Insurance Contracts: Fair Valuation Problem in Presence of the Default Option," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(1), pages 97-121.
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    Cited by:

    1. Donnelly, Catherine & Guillén, Montserrat & Nielsen, Jens Perch, 2013. "Exchanging uncertain mortality for a cost," Insurance: Mathematics and Economics, Elsevier, vol. 52(1), pages 65-76.

    More about this item

    Keywords

    Debt Markets; Insurance&Risk Mitigation; Investment and Investment Climate; Pensions&Retirement Systems; Non Bank Financial Institutions;

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