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In this paper we derive and compare the value of life annuity products in an international context. Our specific goal is to assess the money’s worth and adverse selection impact of annuities in two countries – Singapore and Australia – that have mandatory DC-type retirement plans. This similarity in plan type is offset by differences in the two countries’ national retirement policies. Our comparison therefore exploits the natural experiment in annuity pricing and purchase behaviour under alternative retirement regimes. The results show that after controlling on administrative loadings, there appear to be important differences in measured adverse selection across countries. Specifically, selection appears to be far stronger in the presence of a generous public benefit scheme that provides a first line of defence against the risk of old-age poverty.
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©2001 Pension Research Council of the Wharton School of the University of Pennsylvania. All Rights Reserved.
The authors are grateful for financial support to the Economic Research Institute, the Singapore Management University, the Australian Research Council, and the National Bureau of Economic Research, and to Matthew Williams for research assistance. Helpful comments were provided by Augustine Tan. All opinions remain the authors’ own. This study is part of the NBER program on the Economics of Aging.
Date Posted: 13 September 2019