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(UBS Pensions series 8) UK Annuity Rates and Pension Replacement Ratios 1957 - 2002

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  • Ian Tonks

Abstract

This paper constructs a time series of annuity rates in the UK for 1957-2002, and examines the pricing of UK annuities, and the relationship between the accumulation and decumulation phases of a defined contribution pension scheme by focusing on the properties of the pension replacement ratio. Using data on annuity returns and the returns on other financial assets, the paper simulates replacement ratios, to build up a frequency distribution of the pension replacement ratio for a UK individual. These frequency distributions illustrate the risk in the pension replacement ratio faced by an individual who saves in a typical defined contribution pension scheme.

Suggested Citation

  • Ian Tonks, 2003. "(UBS Pensions series 8) UK Annuity Rates and Pension Replacement Ratios 1957 - 2002," FMG Discussion Papers dp444, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp444
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/dp444.pdf
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    References listed on IDEAS

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    1. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(2), pages 137-150.
    2. Cannon, Edmund & Tonks, Ian, 2004. "UK annuity price series, 1957 2002," Financial History Review, Cambridge University Press, vol. 11(02), pages 165-196, October.
    3. Blundell, Richard & M. Stoker, Thomas, 1999. "Consumption and the timing of income risk," European Economic Review, Elsevier, vol. 43(3), pages 475-507, March.
    4. Brown, Jeffrey R. & Mitchell, Olivia S. & Poterba, James M. & Warshawsky, Mark J., 2001. "The Role of Annuity Markets in Financing Retirement," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262529130, April.
    5. James M. Poterba, 2001. "Annuity markets and retirement security," Fiscal Studies, Institute for Fiscal Studies, vol. 22(3), pages 249-270., September.
    6. Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
    7. Amy Finkelstein & James Poterba, 2002. "Selection Effects in the United Kingdom Individual Annuities Market," Economic Journal, Royal Economic Society, vol. 112(476), pages 28-50, January.
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    Cited by:

    1. Dr Martin Weale & Dr Justin van de Ven, 2006. "A General Equilibrium Analysis of Annuity Rates in the Presence of Aggregate Mortality Risk," National Institute of Economic and Social Research (NIESR) Discussion Papers 282, National Institute of Economic and Social Research.

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