5/12/2016 - This publication is designed help policy makers to better understand annuity products and the guarantees they provide in order to improve the role that these products can play in financing retirement. Product design is a crucial factor in the potential role of annuity products within the pension system, along with the cost and demand for these products, and the resulting risks that are borne by the annuity providers. Increasingly complex products, however, pose additional challenges concerning consumer protection. Consumers need to be aware of their options and have access to unbiased and comprehensible advice and information about these products.
The market for annuity products is fraught with problems, particularly given the multiplicity of types of annuity products available. On the demand side, annuities are often viewed as investment instruments and as such they may be perceived to be unattractive, for instance given the cost of built-in guarantees may be passed on to consumers. Yet annuities are “insurance” products in that they provide some form of costly protection against risk, be it longevity, mortality, or financial risk.
The aim of this project was to improve the understanding of the problems facing annuity markets by focusing more closely on the nature of the guarantees provided by annuity products and their costs for insurance companies and consumers. The main objectives were to:
assess the different types of annuity products and the nature of the guarantees involved
identify the exposures and costs of annuity products for insurers and consumers in light of their characteristics and guarantees
better comprehend insurer risk management of annuity products and the regulatory framework governing annuity products given the guarantees provided
review the fiscal treatment of annuity products, including the treatment of income from these products.