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Hybrid PensionsHybrid PensionsAnnuities ReportAnnuities Report
Brendan Kennedy
The Pensions Board
Friday 2nd May 2008
Pensions Board & Pensions Board & Towards 2016Towards 2016
Hybrid Schemes
Green Paper
Transfer of undertakings
Annuity Report
Hybrid Schemes - BackgroundHybrid Schemes - Background
Closure of DB schemes to new members
Increase in DC membership
Hybrid schemes
Hybrid BookletHybrid Booklet
Explain concepts
Empower participants
No recommendations
Employer Employee
X
X
X
Risk - DBRisk - DB
Investment
Salary
Life Expectancy
Employer Employee
X
X
X
Risk - DCRisk - DC
Investment
Salary
Life Expectancy
Employer Employee
X
X
X
Risk – Hybrid ExampleRisk – Hybrid Example
Investment
Salary
Life Expectancy
Risk Sharing
Different employees
Different income
Different design
Contribution rate more important than design
Review of the Irish Annuities Review of the Irish Annuities MarketMarket
Life Strategies / Indecon
BackgroundBackground
Obligation on some to buy annuities
Increase in cost of annuities
Perception of overcharging
Issues examinedIssues examined
Demand – grow in real terms
Supply – no real barriers
Pricing compared to models
Conclusions and FindingsConclusions and Findings
Small annuities market in Ireland Most demand is due to those with no option but to
buy an annuity ARFs are becoming more attractive and reducing
annuity demand Basic annuity products account for most of sales
Conclusions and FindingsConclusions and Findings
Little product innovation Market concentrated – dominated by small
number of players Demand likely to increase significantly – depends
on policy developments Pricing is determined by long term bond yields
and mortality assumptions
Conclusions and FindingsConclusions and Findings
Evidence of price compression in market Our model based on reasonable assumptions
predicts prices broadly in line with market prices Money’s Worth Analysis suggests returns not
excessive
ARFs / AnnuitiesARFs / Annuities
Green Paper
Commission on Taxation
