Annuities vs. programmed withdraws

In a previous note we stated that one aspect of pensions systems that needs to be studied is the annuities markets. This is important since with the 1990s reforms to pensions systems, many persons will have the opportunity at retirement to choose between programmed withdraws or annuities bought to private insurance companies. At the CISS we have calculated the pension that an individual will receive under the two alternatives (see next graph). In the calculations we use the mortality tables and other parameters established in the regulations of each country analyzed. Other assumptions are stated below the graph.

As can be seen, if people die according to what the mortality tables forecast, most of the persons should opt for annuities. If persons forecast to die before what the mortality table forecast, it may be possible that is better for these persons to choose programmed withdraws. On the contrary, if persons expect to live longer than what the mortality table calculates, they should opt for an annuity. As we stated in our previous note, it is very important to have mortality tables that truly reflect the persons insured by the plans. Pension schemes should hardly work to start building mortality tab les.