57 Pages Posted: 3 Mar 2017
Date Written: February 28, 2017
We compare two longevity risk management contracts in retirement: a collective arrangement that distributes the risk among participants, and a market-provided annuity contract. We evaluate the contracts’ appeal with respect to the retiree’s welfare, and the viability of the market solution through the financial reward to the annuity provider’s equity holders. The collective agreement yields marginally higher individual welfare than an annuity contract priced at its best estimate, and the annuity provider is incapable of adequately compensating its equity holders for bearing longevity risk. Therefore, market-provided annuity contracts would not co-exist with collective schemes.
Keywords: longevity risk, group self-annuitization (GSA), insurance, variable annuity
JEL Classification: D14, E21, G22, G23
Suggested Citation: Suggested Citation
Boon, Ling-Ni and Briere, Marie and Werker, Bas J. M., Longevity Risk: To Bear or to Insure? (February 28, 2017). Available at SSRN: https://ssrn.com/abstract=2926902 or http://dx.doi.org/10.2139/ssrn.2926902