INTRODUCTION

The private provision of mandatory annuities raises a host of issues. The chapter begins by tackling one of particular importance: the impact of reform on the average premium per dollar of regular income. The experience of Chile and subsequent reformers does not provide much guidance on the likely change in annuity prices that results from reform, because these countries did not have private annuity markets of any size prior to the introduction of individual accounts. Consequently, the chapter relies on a simple analytical framework that can be used as a rough guide to how great that impact might be. The chapter then addresses the issue of the overall level and variability of premiums with private providers, as well as the implications of premium differentiation by sex/gender and other characteristics. Finally, it takes up the merits and potential pitfalls of guarantees to annuity providers, tax matters, and the basic administrative aspects of mandatory annuitization.

THE LEVEL AND VARIABILITY OF PREMIUMS

Premium Level

Mandatory annuitization with severely limited exceptions would require that virtually every member of each age cohort buy an annuity of some size as he or she retired. Because voluntary annuitants have a longer life expectancy than the rest of the population, such universal mandatory annuitization would lower the average life expectancy of the annuitant population. In a competitive annuity market, premiums should vary with the average life expectancy of the annuitant population as a whole.