Lesson from the annuities market in Chile

The analysis of the annuities market is becomming more relevant since in the near future many workers in countries with reformed pension systems will have to decide among programmed withdrawals or annuities at the moment of retirement and because there are conjectures that indicate that problems of competition, similar to those faced in the market of pension fund managers, can be found. In this sense, the article of Eduardo Walker published in El Trimestre Económico which focused in the analysis of the annuities market in Chile is very interesting. The author finds that before a regulation was sent to the Congress in 2001, the annuities market showed low levels of competition which were reflected in lower lifetime pensions and higher promotional cost, which were partialy shared woth workers as  upfront payments; but that after the regulation was sent –regulation that envisaged a electronic auction and price cap to brokerage fees—the market were more competitive which implied lower cost and higher pensions.