Hybrid Pensions Annuities Report Brendan Kennedy The Pensions Board Friday 2 nd May 2008
Pensions Board & Towards 2016 Ø Hybrid Schemes Ø Green Paper Ø Transfer of undertakings Ø Annuity Report
Hybrid Schemes - Background Ø Closure of DB schemes to new members Ø Increase in DC membership Ø Hybrid schemes
Hybrid Booklet Ø Explain concepts Ø Empower participants Ø No recommendations
Risk - DB Employer Investment X Salary X Life Expectancy X Employee
Risk - DC Employer Employee Investment X Salary X Life Expectancy X
Risk – Hybrid Example Employer Investment X Salary Employee X Life Expectancy X
Risk Sharing Ø Different employees Ø Different income Ø Different design
Contribution rate more important than design
Review of the Irish Annuities Market Life Strategies / Indecon
Background Ø Obligation on some to buy annuities Ø Increase in cost of annuities Ø Perception of overcharging
Issues examined Ø Demand – grow in real terms Ø Supply – no real barriers Ø Pricing compared to models
Conclusions and Findings Ø Small annuities market in Ireland Ø Most demand is due to those with no option but to buy an annuity Ø ARFs are becoming more attractive and reducing annuity demand Ø Basic annuity products account for most of sales
Conclusions and Findings Ø Little product innovation Ø Market concentrated – dominated by small number of players Ø Demand likely to increase significantly – depends on policy developments Ø Pricing is determined by long term bond yields and mortality assumptions
Conclusions and Findings Ø Evidence of price compression in market Ø Our model based on reasonable assumptions predicts prices broadly in line with market prices Ø Money’s Worth Analysis suggests returns not excessive
ARFs / Annuities Ø Green Paper Ø Commission on Taxation
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