Developing an annuity market in Europe

Abstract:

Pension provision is a hot topic in political and financial circles as the business world comes to grips with the changing demographics and increased expectations of retired people. Annuities are set to play an increasingly important part in pension provisions, offering as they do the potential for conversion of wealth into a lifelong stream of guaranteed income.

This work presents a collection of papers first offered at the Center for Research on Pensions and Welfare Policies (CeRP) Conference in Turin, June 2002. It is organised over eleven chapters. Following an introductory chapter from the editors the second chapter illustrates the fundamental economic role of assets as decumulation tools enabling annuitants to exhaust their wealth at a regular rate over the remainder of their lifetime. Chapter three looks at the regulation of annuities markets from three perspectives: prudential regulation of insurance companies, regulation of the conduct of their business, and regulation of annuities in the overall pension system. Chapter four concentrates on the risk for annuitants - those of main concern are variability and the lack of inflation protection, both of which are features of the current market in annuities. The propensity of households to opt for annuities is explored in chapter five, while the potential to influence that propensity and make annuities more attractive through more accurate risk measurement is the focus of chapter six. Pricing risk is explored in chapter seven. The remaining chapters then present case studies of four countries: United Kingdom, Germany, Switzerland and Italy.

The work will interest scholars, students, researchers and practitioners concerned with annuities.

Elsa Fornero is Professor of Economics, and Director of the Center for Research on Pensions and Welfare Policies (CeRP), at the University of Turin. Elisa Luciano is Professor of Mathematical Finance, Faculty of Economics, University of Turin.