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Roberto Rocha - Annuities and Other Retirement Products: Designing the Payout Phase

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Roberto Rocha Annuities and Other Retirement Products: Designing the Payout Phase

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In the 1990s many emerging economies in Central Europe and Latin America initiated their pension reforms. While most analysis to date has focused on the accumulation phase, there are a number of lessons to be shared as countries start to prepare the retirement options for their contributors, with this book addressing these issues from a public policy perspective.

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Annuities and Other Retirement Products Annuities and Other Retirement Products - photo 1

Annuities and Other Retirement Products

Annuities and

Other Retirement Products

Designing the Payout Phase

Roberto Rocha
Dimitri Vittas
Heinz P. Rudolph

2011 The International Bank for Reconstruction and Development The World Bank - photo 2

2011 The International Bank for Reconstruction and Development / The World Bank
1818 H Street, NW
Washington, DC 20433
Telephone: 202-473-1000
Internet: www.worldbank.org

All rights reserved

1 2 3 4 14 13 12 11

This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent.

The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Rights and Permissions

The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly.

For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com.

All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street, NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: .

ISBN: 978-0-8213-8573-9
eISBN: 978-0-8213-8574-6
DOI: 10.1596/978-0-8213-8573-9

Library of Congress Cataloging-in-Publication Data

Rocha, Roberto Rezende.
Annuities and other retirement products : designing the payout phase / Roberto Rocha, Dimitri Vittas, Heinz P. Rudolph.
p. cm. (Directions in development)
Includes bibliographical references and index.
ISBN 978-0-8213-8573-9 (alk. paper) ISBN 978-0-8213-8574-6
1. Pensions. 2. Annuities. 3. Old age pensions. 4. PensionsGovernment policy. 5. AnnuitiesGovernment policy. 6. Old age pensionsGovernment policy. I. Vittas, Dimitri. II. Rudolph, Heinz P. III. Title.
HD7091.R63 2010
331.2524dc22

2010036026

Cover photo: iStockphoto.com/ozgurdonmaz
Cover design: Quantum Think

Contents
Preface
Abbreviations
Chapter 1Introduction and Overview
Policy Issues in the Design of Payout
Phases in Emerging Countries
Scope and Structure of the Book
Overview of Country Findings
Summary of Policy Recommendations
References
Chapter 2Designing the Payout Phase of Pension Systems: Policy Issues, Constraints, and Options
Pensioner Risks and Retirement Products
Risks of Retirement Products for Providers
and Governments
Policy Options
Summary and Main Policy Recommendations
Notes
References
Chapter 3The Payout Phase of Pension Systems: A Comparison of Five Countries
Overview of Pension Systems
Product Regulation and the Level of
Annuitization
Provider Regulation
Lessons for Other Countries
Conclusion
Notes
References
Chapter 4Australia: Mandating Retirement Savings without Lifetime Annuitization
The Australian Pension System
Menu of Retirement Products
Regulation and Supervision
Concluding Remarks
Notes
References
Chapter 5Switzerland: Rigid Regulation and the Challenge of Sustainability
Overview of the Swiss Pension System
Retirement Products and Moneys
Worth Ratios
Regulation and Supervision
Concluding Remarks
References
Chapter 6Sweden: Promoting Personal Responsibility with a Strong Public Commitment
Public and Occupational Pensions
The Demand for Retirement Products
Insurance Providers and Insurance
Products
Management of Risks and Supervision
Concluding Remarks
Notes
References
Chapter 7Denmark: The Benefits of Group Contracts with Deferred Annuities and Risk-Sharing Features
The Danish Pension System
Retirement Products, Replacement Rates,
and Risk Sharing
Regulation and Supervision
Concluding Remarks
Notes
References
Chapter 8Chile: Building a Robust Market for Fixed Real Annuities
Overall Structure of the Pension and
Retirement System
The Menu and Performance of
Retirement Products
Regulation and Supervision
Concluding Remarks
Notes
References
Index
Figures
3.1Cost of Old-Age Benefits in Pillars 0 and 1
3.2Annual Contributions in Second Pillars
3.3Total Retirement Assets
3.4Target Replacement Rates under Different Scenarios
3.5Level of Life Annuitization
4.1Projections of Superannuation Assets and Age Pension Coverage
4.2Potential Aggregate Replacement Ratios for Selected Deciles
5.1Market Interest Rates and the Minimum Interest Rate, 19902010
5.2Replacement Rates as a Function of Income: First and Second Pillar
6.1The Guaranteed Pension and Its Relation to the Combined NDC-FDC Pension, 2007
6.2Ten-Year Government Bond Rate, Monthly Values, January 1987March 2008
7.1Guaranteed Interest Rates and After-Tax Yield to Maturity on a 10-Year Government Bond, 19882005
7.2Average Expected Replacement Rates for Different Groups of Education, 2000 and 2045
8.1Insurance Premiums in Chile, 19902008
8.2Pension and Insurance Assets, 19902008
8.3Number of Life Insurance Companies, Annuity Providers, and AFPs, 19902008
8.4Market Concentration Ratios in Pensions and Annuities: Herfindahl Ratio and Share of Three Largest Firms, 19882005
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