Differential Mortality and the Value of Individual Account Retirement Annuities

Jeffrey R. Brown

in The Distributional Aspects of Social Security and Social Security Reform

Published by University of Chicago Press

Published in print June 2002 | ISBN: 9780226241067
Published online February 2013 | e-ISBN: 9780226241890 | DOI:
Differential Mortality and the Value of Individual Account Retirement Annuities

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This chapter addresses the distributional implications of alternative annuity options within a mandatory retirement savings system. The extent of redistribution depends on how both the accumulation phase and the payout phase are designed. The demographic groups with lower average life expectancies will fare poorly under an annuity rule that dictates the employment of a single annuity conversion factor, or a single price, for all individuals of the same age. Setting a higher assumed interest rate will lead in less redistribution from high mortality rate groups to lower mortality groups. Any pricing scheme that tries to consider mortality heterogeneity by pricing based on group characteristics will make some individuals even worse off. Allowing preretirement bequests may be a significant element in decreasing the extent of regressive redistribution. The degree of dispersion in the MW ratios is very sensitive to the precise structure of the annuity program.

Keywords: annuity; retirement; savings system; accumulation; payout; employment; mortality; pricing; preretirement bequests

Chapter.  20047 words. 

Subjects: Public Economics

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