A Knightian Analysis of the Viability of a Lifetime Annuity Market in Australia

19 Pages Posted: 4 Apr 2015 Last revised: 24 Aug 2015

See all articles by John R. Evans

John R. Evans

Independent

Amandha Ganegoda

ANZ (Australia and New Zealand) Banking Group, Ltd.

Abdul Razeed

The University of Sydney

Date Written: April 2, 2015

Abstract

The ageing of Australia’s population and the maturing of the Australian Superannuation Guarantee Levy system means that there will be greater amounts of funds available to retirees to fund their retirement income needs. A guaranteed lifetime annuity is often cited as the ideal solution for the majority of retirees to convert their lump sums at retirement to a lifetime income. This paper considers issues relating to the creation of a viable guaranteed lifetime annuity market from both the buyer’s and the seller’s perspective within a Knightian risk management framework and concludes the inherent risks for buyers and sellers are just too high. The paper concludes that without some government intervention in the market, it is unlikely a sustainable lifetime annuity market will develop in Australia.

Keywords: Lifetime Annuity, Longevity risk, Investment risk, Knightian analysis

JEL Classification: G1, G2

Suggested Citation

Evans, John R. and Ganegoda, Amandha and Razeed, Abdul, A Knightian Analysis of the Viability of a Lifetime Annuity Market in Australia (April 2, 2015). Available at SSRN: https://ssrn.com/abstract=2589265 or http://dx.doi.org/10.2139/ssrn.2589265

John R. Evans (Contact Author)

Independent ( email )

No Address Available

Amandha Ganegoda

ANZ (Australia and New Zealand) Banking Group, Ltd. ( email )

Melbourne, Victoria
Australia

Abdul Razeed

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

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