Please Note: This seminar will be given online.
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Actuarial Science and Financial Mathematics seminar series Catherine Donnelly Link to join seminar: Hosted on Zoom |
Pooled annuity funds: a solution to the UK decumulation crisis
Income drawdown products offer an investment strategy to generate an income in retirement. However, for those needing to decumulate their capital to provide a sufficient income in retirement, the risk of these products is high. Here risk is measured as failing to get a stable income for life. In income drawdown, customers are exposed to investment risk, their own longevity risk and sequencing risk, among other risks. However, these risks can be reduced significantly by pooling retirees' longevity risk.
By joining a pooled annuity fund, customers can take less investment risk and reduce significantly their longevity risk. The result is a higher expected income, paid for longer. Pooled annuity funds lie between income drawdown and life annuity contracts in terms of risk. Recent research results produced jointly with Thomas Bernhardt of U. Manchester, UK, on the number of people required to adequately pool longevity risk will be presented.
Additionally, I will present the basics of a structure for pooling longevity risks, which can be done in a fund set up.
This is work funded by the IFoA's Actuarial Research Centre via the programme "Minimizing longevity and investment risk while optimising future pension plans".