Issues in the Issuance of Enhanced Annuities

Robert L. Brown and Patricia Scahill

Social and Economic Dimensions of an Aging Population Research Papers from McMaster University

Abstract: Two forces are about to create a growing market for Individual Annuities in the U. S. and Canada. First, the Post War Baby Boom (born 1946 to 1964) is inexorably moving into retirement. Second, there is a strong move away from Employer-sponsored Defined Benefit pension plans to Defined Contribution pension plans. This trend could even extend (in the U.S.) into the provision of Social Security benefits. Under these arrangements, participants must find a way to mitigate their “longevity” risk (and the investment risk, although this is not the topic of this paper). The most obvious answer is to buy a life annuity. However, at this time in the U. S. and Canada, persons who voluntarily apply to buy a life annuity are generally assumed to be in extremely good health and annuity rates are determined using very low mortality assumptions (high life expectancy assumptions). While there is a growing market in “Enhanced/Impaired Annuities”, especially in the U.K., the present pricing structure for annuities in the U. S. and Canada means that a large proportion of the population cannot get a “fair value” annuity given their less-than-preferred health profile. This paper looks at reasons for this market reality in the U. S. and Canada. It also reviews the underwriting and marketing of life annuities in the United Kingdom where “enhanced” life annuities are available for a broader cross-section of the marketplace.

Keywords: Individual Annuities; Defined Benefit Pension Plan; Defined Contribution Pension Plan; Retirement Income Security; Life Expectancy; Impaired Mortality (search for similar items in EconPapers)
JEL-codes: G22 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2010-05
New Economics Papers: this item is included in nep-age
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://socserv.mcmaster.ca/sedap/p/sedap265.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://socserv.mcmaster.ca/sedap/p/sedap265.pdf [302 Moved Temporarily]--> https://socialsciences.mcmaster.ca/sedap/p/sedap265.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mcm:sedapp:265

Access Statistics for this paper

More papers in Social and Economic Dimensions of an Aging Population Research Papers from McMaster University Contact information at EDIRC.
Bibliographic data for series maintained by ().