Blake, David, Cairns, Andrew J. G. and Dowd, Kevin (2003) Pensionmetrics 2: stochastic pension plan design during the distribution phase. Discussion paper: UBS Pensions Series 006, 442. Financial Markets Group, London School of Economics and Political Science, London, UK.
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Abstract
We consider the choices available to a defined contribution (DC) pension plan member at the time of retirement for conversion of his pension fund into a stream of retirement income. In particular, we compare the purchase at retirement age of a conventional life annuity (i.e., a bond-based investment) with distribution programmes involving differing exposures to equities during retirement. The residual fund at the time of the plan member's death can either be bequested to his estate or revert to the life office in exchange for the payment of survival credits while alive. The most important decision, in terms of cost to the plan member, is the level of equity investment. We also find that the optimal age to annuitise depends on the bequest utility and the investment performance of the fund during retirement.
| Item Type: | Monograph (Discussion Paper) |
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| Official URL: | http://fmg.lse.ac.uk |
| Additional Information: | © 2003 The Authors |
| Uncontrolled Keywords: | Stochastic pension plan design, Defined contribution, Discounted utility, Life annuity, Income drawdown, Asset allocation, Optimal annuitisation age |
| Library of Congress subject classification: | H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| Sets: | Research centres and groups > Financial Markets Group (FMG) Collections > Economists Online |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| Identification Number: | 442 |
| URL: | http://eprints.lse.ac.uk/24830/ |
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