The Private Value of Public Pensions
Konstantin Petrichev and
Susan Thorp
No 211, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney
Abstract:
Individual retirement savings accounts are replacing or supplementing public basic pensions. However at decumulation, replacing the public pension with an equivalent private sector income stream may be costly. We value the Australian basic pension by calculating the wealth needed to generate an equivalent payment stream using commercial annuities or phased withdrawals, but still accounting for investment and longevity risks. At age 65, a retiree needs an accumulation of about 8.5 years earnings to match the public pension in real value and insurance features. Increasing management fees by 1% raises required wealth by about one year's earnings. Delaying retirement by 5 years lowers required wealth by about one half year's earnings. Phased withdrawals have money's worth ratios close to 0.5 suggesting that private replacement costs are high.
Keywords: social security; longevity risk; phased withdrawal; stochastic present value (search for similar items in EconPapers)
JEL-codes: G11 H55 J14 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2007-12-01
New Economics Papers: this item is included in nep-age, nep-ias and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations:
Published as: Petrichev, K. and Thorp, S., 2008, "The Private Value of Public Pensions", Insurance: Mathematics and Economics, 42(3), 1138-1145.
Downloads: (external link)
https://www.uts.edu.au/sites/default/files/qfr-archive-02/QFR-rp211.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found
Related works:
Journal Article: The private value of public pensions (2008) 
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:uts:rpaper:211
Access Statistics for this paper
More papers in Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney PO Box 123, Broadway, NSW 2007, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Duncan Ford ().