Funding for longer lives: retirement wallet and risk-sharing annuities

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Abstract

Longevity increases and population ageing create challenges for all societal institutions, particularly those providing retirement income, health care, and long-term care services. At the individual level, an obvious question is how to ensure all retirees have an adequate, secure, stable and predictable lifelong income stream that will allow them to maintain a target standard of living for however long the individual lives. In this paper we introduce and discuss
the concept of retirement wallet representing the multiple income and service sources individuals and their families will have to fund for longer lives. We then address the main decumulation risks and options, including the adoption of a given longevity insurance strategy, of a programmed withdrawal strategy and of an investment strategy. The main payout options available for allocating assets accumulated in pension plans are discussed, particularly the role of traditional and innovative investment and longevity risk-sharing structures.
We provide illustrative results for the price of innovative participating longevity-linked life annuities (PLLAs) that link benefits to the dynamics of both a longevity index and an interest rate adjustment factor using Spanish mortality and financial market data.
Original languageEnglish
Pages (from-to)268-291
Number of pages24
JournalEkonomiaz. Basque Economic Review
Volume96
Issue number2
Publication statusPublished - 25 Oct 2019

Keywords

  • Longevity-linked life annuities
  • Pension decumulation
  • Risk-sharing
  • Retirement wallet
  • Pension reform
  • Equity release mechanisms

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