Pensionmetrics 2: stochastic pension plan design during the distribution phase

Abstract

We consider the choices available to a defined contribution (DC) pension plan member at the time of retirement for conversion of his pension fund into a stream of retirement income. In particular, we compare the purchase at retirement age of a conventional life annuity (i.e., a bond-based investment) with distribution programmes involving differing exposures to equities during retirement. The residual fund at the time of the plan member's death can either be bequested to his estate or revert to the life office in exchange for the payment of survival credits while alive.The most important decision, in terms of cost to the plan member, is the level of equity investment. We also find that the optimal age to annuitise depends on the bequest utility and the investment performance of the fund during retirement.

Life Annuitization: Why and how Much?

“…Davidoff et al (2003) have proved that full annuitization is optimal in a more general setting than Yaari's. Blake et al (2003) compared three different static strategies of consumption and investment with and without a bequest motive in a market proposing equity-linked annuities. Lachance (2003) studied how a worker's ability to take investment risk is influenced by his capacity to adjust his retirement date as a function of market fluctuations.…”

Betting on Death and Capital Markets in Retirement: A Shortfall Risk Analysis of Life Annuities Versus Phased Withdrawal Plans

“…The rest must be drawn down in the form of a lifelong annuity (offered by a commercial insurance company) or a phased withdrawal plan (typically offered by mutual fund and/or bank providers) which must partly revert into an annuity at the age of 85. In the UK, personal pensions have also grown in popularity (Blake et al, 2003). As in Germany, a portion of the accumulated asset can be taken as a lump sum, while with the rest, one is legally obliged to buy an annuity by the age of 75.…”

Metodología para comparar comisiones por flujo y saldo en fondos de pensiones

“…Battocchio et al (2007) y Yang andHuang (2009) incorporan el riesgo de longevidad en la optimización; el primer caso utiliza a la utilidad esperada como función objetivo, y la segunda utiliza la desviación de la riqueza terminal respecto de una meta predeterminada. Finalmente, el lector interesado en el análisis en la fase de distribución puede referirse, entre otros, a Blake et al (2003), Gerrard et al (2004), Horneff et al (2008), y Gerrard et al (2006. 10 Un valor constante de δ podría implicar que el sistema ha alcanzado madurez respecto de esta forma de cobro.…”