Facing Up to Longevity with Old Actuarial Methods: A Comparison of Pooled Funds and Income Tontines

  • Marcel Bräutigam
  • Montserrat Guillén
  • Jens P. Nielsen
Article
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Abstract

We compare the concepts underlying modern actuarial solutions to pension insurance and present two recently developed pension products—pooled annuity overlay funds (based on actuarial fairness) and equitable income tontines (based on equitability). These two products adopt specific approaches to the management of longevity risk by mutualising it among participants rather than transferring it completely to the insurer. As the market would appear to be ready for such innovations, our study seeks to establish a general framework for their introduction. We stress that the notion of actuarial fairness, which characterises pooled annuity overlay funds, enables participants to join and exit the fund at any time. Such freedom of action is a quite remarkable feature and one that cannot be matched by lifelong contracts.

Keywords

pensions life table retirement income longevity risk actuarial fairness equitability 

Notes

Acknowledgements

We thank the Spanish Ministry of Economy FEDEF grant ECO2016-76203-C2-2-P and ICREA Academia. Jens Perch Nielsen was funded by the research grant “Minimizing longevity and investment risk while optimizing future pension plans”, sponsored by the Institute and Faculty of Actuaries, UK.

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Copyright information

© The International Association for the Study of Insurance Economics 2017

Authors and Affiliations

  • Marcel Bräutigam
    • 1
  • Montserrat Guillén
    • 2
  • Jens P. Nielsen
    • 3
  1. 1.ETH ZurichZurichSwitzerland
  2. 2.Department of Econometrics, Riskcenter-IREAUniversity of BarcelonaBarcelonaSpain
  3. 3.Cass Business SchoolCity University LondonLondonUK

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