This paper addresses the retirement income planning problem from the perspective of the four main building blocks of retirement income: state pension, mortality credits, investment strategies, and drawdown schedules. We detail how these building blocks interact to form a retiree's overall retirement income portfolio, and what trade-offs and interactions must be considered. We find that while access to each building block increases the retiree's certainty equivalent consumption, the most substantial contributor to this increase is from utilization of the mortality credit building block (i.e., annuities).

This paper considers variable annuity (VA) contracts embedded with guaranteed minimum accumulation benefit (GMAB) riders when policyholder’s proceeds are taxed upon early surrender or maturity. These contracts promise the return of the premium paid by the policyholder, or a higher rolled-up value, at the end of the investment period. A partial differential equation valuation framework which exploits the numerical method of lines is used to determine fair fees that render the policyholder and insurer breakeven. Two taxation regimes are considered: one where capital gains are allowed to offset losses and a second where gains do not offset losses. Most insurance providers highlight the tax-deferred features of VA contracts. We show that the regime under which the insured is taxed significantly impacts prices. If losses are allowed to offset gains then this enhances the market, increasing the policyholder’s willingness to participate in the market compared to the case when losses are not allowed to offset gains. With fair fees from the policyholder’s perspective, we show that the net profit is generally positive for insurance companies offering the contract as a naked option without any hedge. We also show how investment policy, as reflected in the Sharpe ratio, impacts and interacts with policyholder persistency.

The increase in pension eligibility ages in Australia, as elsewhere, throws into relief the consequences of gender inequality in employment. Because of career histories in lower paid and more insecure employment, a higher percentage of women than men are dependent on the age pension rather than on superannuation or savings and investments, and so will be disproportionately affected by deferred access. Yet, fewer women than men hold the types of ‘good jobs’ that will sustain them into an older age. Women are more likely to be sequestered in precarious employment, with reduced job quality and a greater potential for premature workforce exit. This article counterposes macro-level data drawn from national cross-sectional labour force statistics and the longitudinal Household Income and Labour Dynamics Australia survey, with case study analysis, based on interviews with 38 women in midlife insecure jobs, in order to identify the types of life course and labour market barriers that contribute to women’s reliance on the pension and the systemic disadvantage that will render them particularly vulnerable to any further erosion of this safety net. The analysis moves between this empirical evidence and a discussion, drawing on the theoretical literature, of the failure in equal opportunity endeavours over recent decades and what this means for later life workforce participation for women.

The retirement systems in many developed countries have been increasingly moving from defined benefit towards defined contribution system. In defined contribution systems, financial and longevity risks are shifted from pension providers to retirees. In this paper, we use a probabilistic approach to analyse the uncertainty associated with superannuation accumulation and decumulation. We apply an economic scenario generator called the Simulation of Uncertainty for Pension Analysis (SUPA) model to project uncertain future financial and economic variables. This multi-factor stochastic investment model, based on the Monte Carlo method, allows us to obtain the probability distribution of possible outcomes regarding the superannuation accumulation and decumulation phases, such as relevant percentiles. We present two examples to demonstrate the implementation of the SUPA model for the uncertainties during both phases under the current superannuation and Age Pension policy, and test two superannuation policy reforms suggested by the Grattan Institute.

This study examines the retirement income of women in Europe, focusing on the effect of motherhood. Due to their more interrupted working careers compared to non-mothers and fathers, mothers are likely to accumulate fewer pension entitlements, and consequently, to receive lower incomes in later life. However, pension systems in Europe vary widely in the degree to which they compensate for care-related career interruptions by means of redistributive elements or pension care entitlements. Therefore, care interruptions may matter for the retirement income of women in some countries, but may be rather irrelevant in others. On the basis of life history data from the Survey of Health, Ageing and Retirement in Europe (SHARELIFE) for women aged between 60 and 75 years in 13 European countries, the interplay of individual lifecourse characteristics with institutional and structural factors is examined. The results show that the lower retirement income of mothers is mainly a result of fewer years in employment and lower-status jobs throughout the lifecourse. The analysis of institutional factors reveals that pension care entitlements are not able to provide a compensation for care-related cutbacks in working life. A generally redistributive design of the pension system including basic or targeted pension schemes, in contrast, appears as an effective measure to balance differences in employment participation over the lifecourse.

Previous research unequivocally shows that immigrants are less successful in the labour market than the native-born population. However, little is known about whether ethnic inequality persists after retirement. We use data on 16 Western European countries from the European Union Statistics on Income and Living Conditions (EU-SILC, 2004–2013) to provide the first comparative study of ethnic inequalities among the population aged 65 and older. We focus on the retirement income gap (RIG) between immigrants from non-European Union countries and relate its magnitude to country differences in welfare state arrangements. Ethnic inequality after retirement is substantial: after adjusting for key characteristics including age, education and occupational status, the average immigrant penalty across the 16 countries is 28 per cent for men and 29 per cent for women. Country-level regressions show that income gaps are smaller in countries where the pension system is more redistributive. We also find that easy access to long-term residence is associated with larger RIGs, at least for men. There is no clear evidence that immigrants’ access to social security programmes, welfare state transfers to working-age households or the strictness of employment protection legislation affect the size of the RIG.

This paper provides an analysis of Chile's 35 year experience with defined contribution, fully funded pensions and argues that this pension approach should not be emulated by countries seeking to reduce the state role in the provision of pensions. The paper shows that 35 years of privatized pensions have led to a massive accumulation and concentration of capital and profits in the hands of the pension fund administrators and insufficient and unequal pensions for the retirees. This legacy of the Pinochet dictatorship has experienced marginal reforms after the transition to democracy. However, those reforms have not altered the system's structure and have augmented the fiscal role as the state attempts to repair some the most damaging outcomes of the private pension scheme.

The focus of the paper is non-profit lifetime annuities in the UK. Annuity insurers have been faced with, or have initiated, an unprecedented amount of change during the last decade, and rapid change is still continuing. We draw out implications for the actuarial management of the business, arising from the evolution of: longevity risk assessment and management, investment strategy and operations, financial reporting, and enterprise risk management. We discuss Solvency II in some technical depth, analysing the proposed rules for technical provisions and solvency capital requirement.

Governments around the developed world are seeking to meet the challenges of the ageing population through strategies which promote a holistic approach to ageing, captured in catch-phrases such as ‘successful’, ‘active’, ‘positive’ and ‘healthy’ ageing. These strategies are supported by a growing body of research, with a particular emphasis on the prerequisites for health and quality of life. Drawing on that research, and using a methodology developed by the London School of Hygiene and Tropical Medicine, the ‘Minimum Income for Healthy Living (MIHL): Older New Zealanders’ study used a health lens to investigate the retirement income needs of older New Zealanders living independently in the community. The MIHL was estimated for people living alone, couples, renters and debt-free home owners. In each case, the MIHL estimates were appreciably higher than the universal state pension paid to older New Zealanders. People living alone and those renting their homes were shown to be worse off than couples and debt-free home owners, respectively. The results highlight that many older New Zealanders are living on an income which may not be enough to support a healthy life. This has important implications for the demand for health, residential and social services and brings life to the question of what level of income might be needed in retirement.

Using the 1994 Canadian General Social Survey, this study examines the economic effects of retiring because of poor health. When men and women who have retired for reasons of poor health are compared to those who have retired for other reasons, the health retirees are disadvantaged on measures of their health, on human capital variables, in terms of their work history, and ultimately, in their retirement income whether personal or household. The men who retired because of ill health were less likely to receive income from a private pension or from interest and dividends. Almost half of the men reported that their financial situation was worse since their retirement. The women retirees suffered from the same disadvantages as the men although their incomes in retirement were much lower. In the multivariate analyses, health had a significant and negative effect on men's household and personal incomes but there was no effect on the incomes of women. For them, any effect that poor health might have had on household income was offset by factors associated with marriage, and the women's own socio-demographic characteristics. The findings suggest reason for policy-makers to be cautious when contemplating blanket reductions in disability/invalidity and pension rates.

Survey evidence on the living conditions of older people has a long and creditable history in Britain. Booth's work alerted policy makers to the often dire circumstances of older people, and accounts of their housing, diet, domestic arrangements and general quality of life stiffened resolve to ensure an adequate minimum standard of living in old age. At the start of what has been termed the welfare state, there were two important studies of old age in the works of Rowntree and Sheldon. In their depiction of the lives of independent elderly people, they provided a useful mid-century benchmark on progress.

The question of income and support infrastructure recurs over the decades and, in many ways, these concerns are central to the question of adequate diets with implications for health and wellbeing. The possibility, or otherwise, of being able to afford, buy and prepare food which is of appropriate nutritional and social quality, is fundamental to an independent life in old age. Using food as a focus for review, this article maps what has been said about the circumstances of independent elderly people and what has been done to support them in the community. It is concluded that while considerable progress has been made over the century, their relative position remains problematic. This is especially the case for those living on their own in old age and with a reliance on the basic state pension.