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Improving Money’s Worth Ratio Calculations: The Case of Singapore’s Pension Annuities

Author

Listed:
  • Fong Joelle H.

    (ARC Centre of Excellence in Population Ageing Research, University of New South Wales, Sydney, NSW, Australia)

  • Lemaire Jean

    (Department of Statistics, Wharton School, 400 JMHH 3730 Walnut Street, Philadelphia, PA 19194-6340, USA)

  • Tse Yiu K.

    (School of Economics, Singapore Management University, 70 Stamford Road, #B1-38a, Singapore 178901, Singapore)

Abstract

This paper contributes to a better understanding of the risks involved in a life annuity investment. We study the full distribution of weighted annuity benefits and quantify risk measures such as dispersion and skewness, thereby extending the usefulness of the popular money’s worth valuation framework for life annuities. Using data from pension annuities in Singapore, we also introduce several risk measures that might appeal to less financially sophisticated retirees. A more detailed and accurate picture of the risk of investing in life annuities emerges, enabling prospective annuitants to differentiate among products that may appear seemingly uniform in terms of money’s worth, but vary widely in terms of their risk attributes.

Suggested Citation

  • Fong Joelle H. & Lemaire Jean & Tse Yiu K., 2014. "Improving Money’s Worth Ratio Calculations: The Case of Singapore’s Pension Annuities," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 8(1), pages 1-26, March.
    • Handle: RePEc:bpj:apjrin:v:8:y:2014:i:1:p:1-26:n:6
    DOI: 10.1515/apjri-2013-0027
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    References listed on IDEAS

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