Annuity Values in Defined Contribution Retirement Systems: The Case of Singapore and Australia

Doyle, Suzanne; Mitchell, Olivia S.; Piggott, John

doi:10.3386/w8091

Cited by 16 publications

(33 citation statements)

References 3 publications

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“…All annuity products analyzed provide a 5-year guarantee period. Doyle, Mitchell and Piggott (2001). Assumed nominal interest rate 5 percent in Singapore and 6.96 percent in Australia, consistent with historical trend.…”

Section: Final Thoughtsmentioning

confidence: 79%

“…For instance in the United States, purchases of life annuities totaled almost $120 billion in 1999, but the vast majority of the market consists of variable annuities rather than products paying out income for life (Brown, Mitchell, Poterba, and Warshawsky, forthcoming; henceforth BMPW). In the UK and Australia, annuity markets also appear relatively small (Finkelstein and Poterba, 2000;Murthi, Orszag and Orszag, 1999;Doyle, Mitchell and Piggott, 2001). Recent interest in annuity markets has come from Latin America, resulting from more than a dozen countries having converted their pay-as-you-go national defined benefit (DB)…”

Section: Olivia S Mitchellmentioning

confidence: 99%

“…For example Doyle, Mitchell and Piggott (2001) devise annuity loadings for Australia and Singapore and find adverse selection far stronger in Australia. This difference is attributed, in part, to the existence of a means-tested and quite generous old-age safety net in Australia, while no minimum consumption is guaranteed in Singapore.…”

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confidence: 99%

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Developments in Decumulation: The Role of Annuity Products in Financing Retirement

Mitchell¹

2001

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Section: Final Thoughtsmentioning

confidence: 79%

Section: Olivia S Mitchellmentioning

confidence: 99%

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Developments in Decumulation: The Role of Annuity Products in Financing Retirement

Mitchell¹

2001

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“…For example, for the female elderly to secure a monthly payout of $670 under the benchmark scenario, the premium is $84,682 when l=4% and increases to $89,568 when 17 Detailed discussions are given by Doyle et al (2001) and Fong (2002) respectively. 18 Similar monthly payouts computed by other sources using the newly decreed minimum amount of $80,000 effective in July 2003 are not available for comparison.…”

Section: Simulation Resultsmentioning

confidence: 99%

Life annuities of compulsory savings and income adequacy of the elderly in Singapore

Chia

Tsui

2003

Journal of Pension Economics and Finance

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Singapore has a publicly managed central provident fund (CPF) system, which is compulsory and based on individual accounts with an explicit link between contribution and benefits. This paper assesses the adequacy of the CPF saving to meet the retirement needs of the elderly in Singapore. Instead of emphasizing the mechanism of accumulation, we focus on the expenditure side of the lifetime budget of the elderly and estimate the present value of retirement consumption (PVRC). The estimated PVRC is obtained by simulations through three major components: calibration of subsistence and medical expenses of the elderly ; forecast of cohort survival probability by age and by sex ; and generation of yield curves to discount the future cash flows. Our results indicate that the existing CPF-decreed minimum sum is inadequate to meet the future consumption needs of the female elderly. The inadequacy becomes more severe when medical expense is set at higher growth rates. Moreover, the monthly payouts of a single premium deferred annuity are computed as illustrative examples.

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“…The market for annuities in the United Kingdom shows a similar pattern (Blake, 1999). Data from the Australian Treasury show that only 3 percent of the estimated 100,000 Australians retiring each year purchase annuities (Doyle, Mitchell, and Piggott, 2001).…”

Section: Introductionmentioning

confidence: 99%

On the Cost of Adverse Selection in Individual Annuity Markets: Evidence From Singapore

Fong¹

2002

J of Risk & Insurance

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New evidence is presented on the cost of adverse selection in individual annuity markets using Singapore data. The Singapore annuity market is an interesting setting to examine the cost of adverse selection for three reasons. First, unlike many Western countries, the Singapore government provides very limited public financial assistance for retirees. Second, while social security contributions mandated under the Central Provident Fund (CPF) result in a high forced savings rate, a large proportion of CPF savings, are used up for housing. Third, to ensure that retirees have sufficient funds to meet basic needs, individuals who reach age 55 are required to set aside a minimum amount of their CPF savings, which can be withdrawn at age 62. The CPF Board allows various options for investing the minimum sum, but the most attractive option is to purchase an annuity. The institutional setting in Singapore in effect provides insurers with a large captive market for annuities. It is conjectured that this should be reflected in a significantly lower cost of adverse selection for annuities sold in Singapore as compared with other countries. The results herein, using data for CPF-approved insurers, are strongly consistent with this conjecture. On average, money's worth of annuities is higher than annuities sold to a similar age-gender mix in the United States, United Kingdom, and Australia. Adverse selection accounts for less than 13 percent of the cost of longevity insurance compared to 30-50 percent documented in many previous studies. These results suggest that one way to resolve the adverse selection problem is to adopt a universal individual defined contribution pension scheme that mandates or provides strong incentives for retirees to purchase annuities.

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Annuity Values in Defined Contribution Retirement Systems: The Case of Singapore and Australia

Cited by 16 publications

References 3 publications

Developments in Decumulation: The Role of Annuity Products in Financing Retirement

Developments in Decumulation: The Role of Annuity Products in Financing Retirement

Life annuities of compulsory savings and income adequacy of the elderly in Singapore

On the Cost of Adverse Selection in Individual Annuity Markets: Evidence From Singapore

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