Publication: Annuities : Regulating Withdrawals from Individual Pension Accounts
Date
2005-01
ISSN
Published
2005-01
Author(s)
World Bank
Abstract
Pension, to most people, implies a
regular payment from a specific age-such as retirement-until
death. Individual retirement accounts are a vehicle for
retirement savings but they do not become a pension in the
conventional sense of the word until they are converted to
an 'annuity'. How much and what type of
annuitization should be mandated are key policy questions
facing reformers. Economists believe that annuities can make
people better off. The intuition is straightforward. Life
expectancy is normally uncertain. So people would have to
spend accumulated wealth slowly after retirement to ensure
an adequate income should they live a long time. This kind
of self-insurance is costly because it increases the chances
that people will consume less than they could have if they
knew when they were going to die. This cost can be reduced
with annuities, which pool risk across individuals.
Citation
“World Bank. 2005. Annuities : Regulating Withdrawals from Individual Pension Accounts. World Bank Pension Reform Primer Series. © Washington, DC. http://openknowledge.worldbank.org/entities/publication/459fc218-b5aa-521d-ac4b-65bf721111ea License: CC BY 3.0 IGO.”