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Economic Applications to Actuarial Work: Personal Pensions and Future Rates of Return

Published online by Cambridge University Press:  10 June 2011

A.C.M. Cantor  and
J.A. Sefton
A.C.M. Cantor
Affiliation:
509 Clifton Drive North, St. Annes, Lancashire FY8 2QX, U.K. Tel: +44(0)1253-724472; Fax: +44(0)1253-724472; E-mail: alan.cantor@btinternet.com
J.A. Sefton
Affiliation:
Imperial College Management School, 53 Prince's Gate, London SW7 2PG, U.K. and N.I.E.S.R., 2 Dean Trench Street, London SW1P 3HE, U.K. Tel: +44(0)20-7222-7665; Fax: +44(0)20-7654-1900; E-mail: jsefton@niesr.ac.uk
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Abstract

This paper considers certain applications of economics to actuarial work, concentrating on three issues of public interest. The background to the first two issues is the Government's encouragement of personal pensions particularly through stakeholder pensions. The paper shows how the use of an economics model enables investigations to be made, firstly on the demand for personal pensions by different income groups and secondly on the likely inequality of benefits between generations due to variations in the rates of return. The conclusion on the first issue is that personal pensions are of little benefit to low-earners, i.e. those the Government most wants to benefit, and recommends a way of rectifying this; the main conclusion on the second issue is that households will take action to mitigate much of the inequality. The third issue, that of estimating future rates of return, is one of key financial importance. The paper reviews relevant economic papers in this area and considers how the actuarial profession may improve communication with the economics discipline and with its members.

Keywords

Equity Risk PremiumFinancial RiskIntergenerational Risk SharingLiquidity ConstraintsPersonal PensionsFuture Rate of ReturnReal Interest Rate
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 8 , Issue 1 , 01 April 2002 , pp. 91 - 131
Copyright
Copyright © Institute and Faculty of Actuaries 2002

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