A Sustainable, Variable Lifetime Retirement Income Solution for the Chilean Pension System

46 Pages Posted: 28 Mar 2022

See all articles by Olga Fuentes

Olga Fuentes

D3P Global Pension Consulting; Pension Regulator Chile

Richard K. Fullmer

Nuova Longevità Research; Nuovalo

Manuel Enrique Garcia Huitron

Nuovalo

Date Written: March 1, 2022

Abstract

There is a need in pension systems to significantly improve the level and stability of pension payments as pensioners age. Solutions to address increased longevity and longevity risk should be not limited to increasing the take-up rate of annuities – explicit guarantees are costly in a low-interest rate environment, and lock-in of savings may not be in line with members' preferences. Our proposal is to develop a Sustainable, Variable Lifetime Retirement Income Solution in a more flexible and cost-efficient way. Recent developments favoring flexible products that are more suited to satisfy the needs and preferences of members are key for improving the pay-out phase. In this respect, we believe our tontine design proposal is a superior alternative for the Chilean Pension System. Tontine-like arrangements offer a unique value proposition to address the global retirement challenge. Our retirement income proposal provides clear transparency and investment flexibility with higher expected income streams. It does not involve higher costs since there are no explicit guarantees and provides a means to offer longevity insurance even if insurers are unwilling to supply it. Several proposals are analyzed, including deferred pension arrangements and tontine-like solutions combined with existing pay-out products. Our proposal does not distort the annuity market; on the contrary, it complements it, and it is in line with the transition of many countries to include tontine-like longevity-risk sharing and collective elements in their defined-contribution designs.

Keywords: Tontines, Annuities, Programmed Withdrawals, Pensions, Retirement, Longevity Risk

JEL Classification: G11, G17, G18, G22, G23, J26, H31

Suggested Citation

Fuentes, Olga and Fullmer, Richard K. and Garcia Huitron, Manuel Enrique, A Sustainable, Variable Lifetime Retirement Income Solution for the Chilean Pension System (March 1, 2022). Available at SSRN: https://ssrn.com/abstract=4045646 or http://dx.doi.org/10.2139/ssrn.4045646

Olga Fuentes (Contact Author)

D3P Global Pension Consulting ( email )

3 Withdean Court Avenue
Brighton BN1 6YF
United Kingdom

HOME PAGE: http://https://d3pglobal.com/

Pension Regulator Chile ( email )

Alameda 1449
Torre 2, Piso 15
Santiago
Chile

HOME PAGE: http://https://www.spensiones.cl/portal/institucional/594/w3-channel.html

Richard K. Fullmer

Nuova Longevità Research ( email )

3120 Dillon St
Baltimore, MD MARYLAND 21224
United States
+1 202 579 6337 (Phone)

HOME PAGE: http://www.nuovalongevita.com

Nuovalo ( email )

3120 Dillon St
Baltimore, MD MARYLAND 21224
United States
+1 202 579 6337 (Phone)

HOME PAGE: http://www.nuovalo.com

Manuel Enrique Garcia Huitron

Nuovalo ( email )

3120 Dillon St
Baltimore, MD Region Metropolitana de Santiago 21224
Chile
944698545 (Phone)
7560854 (Fax)

HOME PAGE: http://www.nuovalo.com

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