IDEAS home Printed from https://ideas.repec.org/a/gam/jrisks/v13y2025i2p37-d1594839.html
   My bibliography  Save this article

Longevity Risk and Annuitisation Decisions in the Absence of Special-Rate Life Annuities

Author

Listed:
  • Jorge de Andrés-Sánchez

    (Social and Business Research Laboratory, Rovira i Virgili University, Av. de la Universitat 1, 43204 Reus, Spain)

  • Laura González-Vila Puchades

    (Department of Economic, Financial and Actuarial Mathematics & Observatory of European Systems of Complementary Social Pension Plans, University of Barcelona, Av. Diagonal 690, 08034 Barcelona, Spain)

Abstract

Longevity risk affecting older adults can be transferred to the insurance market by purchasing a lifetime annuity. Special-rate life annuities, which are priced, among other factors, on the basis of health and lifestyle factors, go beyond traditional considerations of age and sex by using modified mortality tables. However, they are not available in many countries. In regions where life annuities are priced solely via standard mortality tables, retirees with below-average life expectancy may face unfair pricing. This study aims to quantify this actuarial unfairness and proposes an alternative annuitisation strategy for these retirees. The strategy allows them to transfer longevity risk by acquiring a life annuity on the basis of their actual mortality probabilities, thereby mitigating actuarial inequities. Additionally, the paper examines how tax incentives can exacerbate actuarial unfairness and, specifically for Spanish tax regulations, compares different alternatives under two scenarios related to the sources used for purchasing life annuities.

Suggested Citation

  • Jorge de Andrés-Sánchez & Laura González-Vila Puchades, 2025. "Longevity Risk and Annuitisation Decisions in the Absence of Special-Rate Life Annuities," Risks, MDPI, vol. 13(2), pages 1-27, February.
  • Handle: RePEc:gam:jrisks:v:13:y:2025:i:2:p:37-:d:1594839
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-9091/13/2/37/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2227-9091/13/2/37/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ayuso, Mercedes & Bravo, Jorge M. & Holzmann, Robert, 2021. "Getting life expectancy estimates right for pension policy: period versus cohort approach," Journal of Pension Economics and Finance, Cambridge University Press, vol. 20(2), pages 212-231, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Holzmann, Robert & Alonso-García, Jennifer & Labit-Hardy, Heloise & Villegas, Andres M., 2017. "NDC Schemes and Heterogeneity in Longevity: Proposals for Redesign," IZA Discussion Papers 11193, Institute of Labor Economics (IZA).
    2. Filipe Costa Souza & Wilton Bernardino & Silvio C. Patricio, 2024. "How life-table right-censoring affected the Brazilian social security factor: an application of the gamma-Gompertz-Makeham model," Journal of Population Research, Springer, vol. 41(3), pages 1-38, September.
    3. Cláudia Simões & Luís Oliveira & Jorge M. Bravo, 2021. "Immunization Strategies for Funding Multiple Inflation-Linked Retirement Income Benefits," Risks, MDPI, vol. 9(4), pages 1-28, March.
    4. Bravo, Jorge M. & Ayuso, Mercedes & Holzmann, Robert & Palmer, Edward, 2021. "Addressing the life expectancy gap in pension policy," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 200-221.
    5. Bravo, Jorge Miguel & Ayuso, Mercedes & Holzmann, Robert, 2019. "Making Use of Home Equity: The Potential of Housing Wealth to Enhance Retirement Security," IZA Discussion Papers 12656, Institute of Labor Economics (IZA).
    6. Strozza, Cosmo & Vigezzi, Serena & Callaway, Julia & Kashnitsky, Ilya & Aleksandrovs, Aleksandrs & Vaupel, James W, 2022. "Socioeconomic inequalities in survival to retirement age: a register-based analysis," OSF Preprints 8wbdv_v1, Center for Open Science.
    7. Samuel Asante Gyamerah & Janet Arthur & Saviour Worlanyo Akuamoah & Yethu Sithole, 2023. "Measurement and Impact of Longevity Risk in Portfolios of Pension Annuity: The Case in Sub Saharan Africa," FinTech, MDPI, vol. 2(1), pages 1-20, January.
    8. Keivan Diakite & Pierre Devolder, 2021. "Progressive Pension Formula and Life Expectancy Heterogeneity," Risks, MDPI, vol. 9(7), pages 1-19, July.
    9. Strozza, Cosmo & Vigezzi, Serena & Callaway, Julia & Kashnitsky, Ilya & Aleksandrovs, Aleksandrs & Vaupel, James W, 2022. "Socioeconomic inequalities in survival to retirement age or shortly afterwards: a register-based analysis," OSF Preprints 8wbdv, Center for Open Science.
    10. Fabrizio Culotta, 2021. "Life Expectancy Heterogeneity and Pension Fairness: An Italian North-South Divide," Risks, MDPI, vol. 9(3), pages 1-22, March.
    11. Mercedes Ayuso & Jorge M. Bravo & Robert Holzmann & Edward Palmer, 2021. "Automatic Indexation of the Pension Age to Life Expectancy: When Policy Design Matters," Risks, MDPI, vol. 9(5), pages 1-28, May.
    12. Bravo, Jorge M. & Ayuso, Mercedes & Holzmann, Robert & Palmer, Edward, 2023. "Intergenerational actuarial fairness when longevity increases: Amending the retirement age," Insurance: Mathematics and Economics, Elsevier, vol. 113(C), pages 161-184.
    13. Bernd Genser & Robert Holzmann, 2019. "National Pension Policy and Globalization: A New Approach to Strive for Efficient Portability and Equitable Taxation," Working Paper Series of the Department of Economics, University of Konstanz 2019-04, Department of Economics, University of Konstanz.
    14. József Banyár, 2021. "The Outlines of a Possible Pension System Funded with Human Capital," Risks, MDPI, vol. 9(4), pages 1-32, April.
    15. Serena Vigezzi & Cosmo Strozza, 2024. "Differences in mortality before retirement: The role of living arrangements and marital status in Denmark," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 50(20), pages 515-546.
    16. Jesús-Adrián Álvarez & Malene Kallestrup-Lamb & Søren Kjærgaard, 2020. "Linking retirement age to life expectancy does not lessen the demographic implications of unequal lifespans," CREATES Research Papers 2020-17, Department of Economics and Business Economics, Aarhus University.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jrisks:v:13:y:2025:i:2:p:37-:d:1594839. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.