Life annuities provide protection against the risk of outliving the assets available at the time of retirement, because of a long lifetime or a poor investment performance. Hence, purchasing a life annuity, i.e. annuitizing (a part of) the assets available at the retirement time, should constitute a logical individual choice, especially if no other pension resources are available. Market evidence however shows a low propensity to annuitize the assets. Of course, good reasons work against the annuitisation. In particular, the technical mechanism underpinning life annuities implies that, at the annuitant’s death, the available fund related to the annuity must be shared among the surviving annuitants, so that nothing is credited to the annuitant’s estate. This feature is clearly in contrast with a bequest motivation. Further, a life annuity provides the annuitant with an “inflexible” post-retirement income: the annual amounts must be in line with the benefit profile, as stated by the policy conditions. Finally, purchasing a life annuity is an irreversible decision: surrendering is generally not allowed to the annuitants (clearly, to avoid adverse selection effects); hence, the life annuity constitutes an “illiquid” asset in the retiree’s portfolio.
The above features can be perceived as disadvantages, and can hence weaken the propensity to immediately annuitize a significant share of the amount available at retirement. These disadvantages can be mitigated, at least to some extent, either by purchasing life insurance products in which other benefits are packaged, or adopting specific annuitisation strategies.
The seminar will focus on various product designs and related actuarial aspects, as well as on reserving, capital needs and risk management issues.
Organised by the EAA - European Actuarial Academy GmbH in cooperation with the Svenska Aktuarieföreningen.
