An Economic Analysis of Proposals to Improve Coverage of Longevity Risk

David Boisclair, Jean-Yves Duclos, Steeve Marchand and Pierre-Carl Michaud

Cahiers de recherche from Chaire de recherche Industrielle Alliance sur les enjeux économiques des changements démographiques

Abstract: We use simulation methods to analyze the impacts of certain proposed reforms to improve the coverage of longevity risk. This risk, which may in principle be adequately covered by classic defined-benefit pension plans, has been of particular interest in Quebec for some years now, notably due to the decline in the participation to such plans. Recent proposals which aim to increase the coverage of longevity risk mostly deal with expansion of the “2nd pillar" of the retirement income system, currently comprised of the Quebec Pension Plan. We therefore consider a key proposal of the D’Amours committee (the longevity pension), in addition to two other proposals: that of Mintz and Wilson, which aims to increase the generosity of the current regime, and that of Wolfson, which introduces a concept of contribution and benefit rates differentiated by income. Using data from Statistics Canada surveys, we analyze the internal rate of return (IRR) of these proposals for various types of individuals taking into consideration inequality in life expectancy, temporal variability of income, and interactions with taxation and the different retirement income support programs. We contrast the results with those obtained when opting instead for additional contributions into existing voluntary savings vehicles combined with a basic annuity purchased at retirement.

Keywords: Longevity risk; retirement savings; inequality; life expectancy (search for similar items in EconPapers)
JEL-codes: I14 J18 J26 J32 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-age and nep-ltv
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Related works:
Working Paper: An economic analysis of proposals to improve coverage of longevity risk (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:criacr:1406

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