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Differential Mortality and the Value of Individual Account Retirement Annuities

Differential Mortality and the Value of Individual Account Retirement Annuities

Chapter:
(p.401) 10 Differential Mortality and the Value of Individual Account Retirement Annuities
Source:
The Distributional Aspects of Social Security and Social Security Reform
Author(s):
Jeffrey R. Brown
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226241890.003.0011

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

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