Mandatory pension savings and the insurance value of annuities

Torben M. Andersen

Economics Letters, 2025, vol. 256, issue C

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.

Keywords: Annuities; Differential mortality; Distribution; Indexation (search for similar items in EconPapers)
JEL-codes: D14 G22 H55 J18 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:256:y:2025:i:c:s0165176525004112

DOI: 10.1016/j.econlet.2025.112574

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