The private value of public pensions

Abstract

Insurance branch: IB80 IB81JEL classification: H55 J14 G11 Subject category: IE25Keywords: Social security Longevity risk Phased withdrawal Stochastic present value a b s t r a c t As individual retirement savings accounts replace public pensions and defined benefit schemes, more retirees will decumulate using commercial income streams rather than public or corporate annuities.Here we use an approximation to the retirement income problem [Huang, H., Milevsky, M.A., Wang, J., 2004. Ruined moments in your life: How good are the approximations? Insurance: Math. Econom. 34, 421-447] to compute the cost of replicating a public real life annuity (the Australian Age Pension) using commercial decumulation products. We treat the public pension as a phased withdrawal plan, matching insurance and payment features, and back out the stochastic present value of the plan under an arbitrarily small ruin probability. To reproduce the pension payment with 99% certainty, a male retiree needs 3.6 times the current average retirement savings account balance, and a female retiree needs more than 10 times the average female account balance. At 95% certainty, required wealth falls by around 25%. We measure separately the impact of gender, investment strategy, retirement age and management fees on this valuation.

Means-Tested Public Pensions, Portfolio Choice and Decumulation in Retirement*

“…6 Compared with other OECD countries, the Age Pension creates low replacement rates (Harmer, 2008), but eligibility is highly valued: generating a similar stream of income from private savings via commercial income stream products would require an accumulation of around seven times average annual incomes (Petrichev & Thorp, 2008). 6 Compared with other OECD countries, the Age Pension creates low replacement rates (Harmer, 2008), but eligibility is highly valued: generating a similar stream of income from private savings via commercial income stream products would require an accumulation of around seven times average annual incomes (Petrichev & Thorp, 2008).…”

Superannuation in Australia: A Survey of the Literature

“…It follows that unless Australian retirees change the way they manage SG accumulations, retirement incomes will become more volatile in the future. It also follows that many retirees will depend more on the Age Pension's capacity to buffer against investment risk (Petrichev & Thorp, ; Hulley et al ., ; Andreasson et al ., )…”

Factors affecting the purchase of commercial endowment insurance for the Chinese adults

“…There are three studies (Petrichev andThorp , Headen andLee 1974, Beck and, that tell how gender affects the purchase commercial endowment insurance. Li and Lu believe that health status have no significant impact.…”

“…-The purchase of commercial endowment insurance and number of children in family Three these study the number of children in family (Petrichev andThorp , Zhang andZhang 2018, Wang, Zhu et al 2019). People with more children, they will have higher consumption in family when the parents are around 45 years old, but if they are over 60 years old, the more children, the more help for parents in the family.…”