Skip to main content Accessibility help
×
Home

Product options for enhanced retirement income

  • C. Donnelly and J. Young

Abstract

A new stream of research proposes how people can increase their income in retirement by pooling their mortality risk. How one of these mortality risk-sharing rules could be implemented in practice, as part of a retirement income scheme, is considered. A potential advantage of the scheme is that a retiree’s housing wealth can be monetised to provide an income stream. This would mean that retirees can continue living in their home, without needing to downsize. It may be most attractive to the millions of single pensioners, particularly those who are “asset-rich and cash-poor”. Other types of assets that could be included and how to mitigate selection risks are assessed. A way of smoothing the raw mortality credits in order to make the scheme more appealing to potential members is proposed. An illustrative premium calculation suggests that the cost of the smoothing is very small compared to the potential attractiveness of an enhanced, smoothed income.

  • View HTML
    • Send article to Kindle

      To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

      Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

      Find out more about the Kindle Personal Document Service.

      Product options for enhanced retirement income
      Available formats
      ×

      Send article to Dropbox

      To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

      Product options for enhanced retirement income
      Available formats
      ×

      Send article to Google Drive

      To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

      Product options for enhanced retirement income
      Available formats
      ×

Copyright

This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.

Corresponding author

*Correspondence to: Catherine Donnelly, Department of Actuarial Mathematics and Statistics, and the Maxwell Institute for Mathematical Sciences, Heriot-Watt University, Edinburgh EH14 4AS, UK. E-mail: C.Donnelly@hw.ac.uk

References

Hide All
Adams, J. & James, S. (2009). Retirement income and assets: how can housing support retirement?. Pensions Policy Institute Discussion Paper, London.
Aviva, & Deloitte, (2010). Europe’s pension gap, available at http://www.aviva.com/europe-pensions-gap/ (accessed 20 January 2017).
Balchin, S. & Shah, D. (2004). The pensioners’ incomes series 2002/3. Pensions Analysts Division, National Statistics.
Bunn, P., Le Roux, J., Johnson, R. & McLeay, M. (2012). Influences on household spending: evidence from the 2012 NMG Consulting survey. Quarterly Bulletin Household Sector Articles, Bank of England.
Cannon, E. & Tonks, I. (2009). Money’s worth of pension annuities. Department for Work and Pensions, UK Government. Research Report No 563, London.
Choi, J., Laibson, D. & Madrian, B. (2010). Why does the law of one price fail? An experiment on index mutual funds. Review of Financial Studies, 23(4), 14051432.
Department for Work and Pensions (2012). Family resources survey, United Kingdom 2010/11.
Department for Work and Pensions (2014). The pensioners’ incomes series 2012/3. National Statistics.
Donnelly, C., Guillen, M. & Nielsen, J. (2014). Bringing cost transparency to the life annuity market. Insurance: Mathematics and Economics, 56, 1427.
Elton, E., Gruber, M. & Blake, C. (2001). A first look at the accuracy of CRSP mutual fund database and a comparison of the CRSP and Morningstar mutual fund databases. Journal of Finance, 56(6), 24152430.
Equity Release Council (2017). Equity release market report, Autumn 2017.
Ji, M., Hardy, M. & Li, J.S.-H. (2011). Markovian approaches to joint-life mortality. North American Actuarial Journal, 15(3), 357376.
Lusardi, A. & Mitchell, O. (2007). Financial literacy and retirement preparedness: evidence and implications for financial education. Business Economics, 42, 3544.
Office for National Statistics (2012). Pension trends – Chapter 2: Population change.
Office for National Statistics (2013). Pension trends – Chapter 7: Private pension scheme membership.
Office for National Statistics (2014). Pension trends – Chapter 3: Property wealth, wealth in Great Britain 2010-12.
Prudential (2014). Over two million homeowners over 55 bank on downsizing, available at http://uk.prweb.com/releases/2014/05/prweb11869634.htm (accessed 20 January 2017).
Sodha, S. (2005). Housing-rich, income-poor: the potential of housing wealth in old age. A paper for housing across the lifecycle, Institute for Public Policy Research, London.
Spreeuw, J. & Owadallya, I. (2013). Investigating the broken-heart effect: a model for short-term dependence between the remaining lifetimes of joint lives. Annals of Actuarial Science, 7(2), 236257.
Wilson, S. (2007). Annuitant longevity improvements. UK “Dear Chief Executive Officer” letter. Financial Services Authority.

Keywords

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed