Journal article

Annuitisation and cross-subsidies in a two-tiered retirement saving system

Benjamin Avanzi, Sachi Purcal

Annals of Actuarial Science | Cambridge University Press (CUP) | Published : 2014

Abstract

AbstractWe develop a generalisation of the World Bank (1994) model of forced saving for retirement. This broader model consists of two tiers of second pillar savings – mandated and non-mandated (voluntary). Furthermore, the government can set two types of guarantees on the first (mandated) tier – investment returns and annuity prices – leading to possible cross-subsidisation between the tiers. This has the potential to induce social redistribution, foster a liquid private market for life annuities, and obviate some of the investment risk and annuity price risk that retirees face.We formulate a quantitative model of financial flows within such a system, which explains the mechanism by which c..

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University of Melbourne Researchers

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