The Maturity Structure of Administrative Costs: Theory and UK Experience

Private Pensions Series, No. 3, December 2000

27 Pages Posted: 11 Mar 2012

See all articles by Mamta Murthi

Mamta Murthi

World Bank

J. Michael Orszag

Willis Towers Watson - Reigate (Surrey Office); Institute for the Study of Labor (IZA)

Peter R. Orszag

Lazard Asset Management

Date Written: June 1, 2000

Abstract

Front-loading of charges on insurance products can impose considerable costs on consumers when policies lapse early. This paper develops a theory of the maturity structure of charges similar to that used to examine the term structure of interest rates, and applies it to the UK experience with individual accounts. We find that the implied term structure of charges was historically sharply decreasing (so that charges relative to the account balance were higher the shorter the maturity of the account), with implicit yields in the early years of an account strongly negative. In the past year, however, the relationship has changed dramatically as a result of regulated charge levels and structures associated with the new Stakeholder pensions.

Keywords: charges, individual accounts, pensions, front-loading, implicit yields, UK

JEL Classification: G29

Suggested Citation

Murthi, Mamta and Orszag, J. Michael and Orszag, Peter R., The Maturity Structure of Administrative Costs: Theory and UK Experience (June 1, 2000). Private Pensions Series, No. 3, December 2000. Available at SSRN: https://ssrn.com/abstract=2018322

Mamta Murthi

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

J. Michael Orszag (Contact Author)

Willis Towers Watson - Reigate (Surrey Office) ( email )

Watson House
London Road
Reigate, Surrey, RH2 9PQ
United Kingdom
+44 1737 241144 (Phone)
+44 1737 241496 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Peter R. Orszag

Lazard Asset Management ( email )

30 Rockefeller Plaza
New York, NY 10112
United States

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