Table VI.
Welfare estimates
| 60 Females | 65 Females | 60 Males | 65 Males | Average | |
|---|---|---|---|---|---|
| Observed equilibrium: | |||||
| Average wealth-equivalent | 100.24 | 100.40 | 99.92 | 100.17 | 100.16 |
| Maximum Monet at Stake (MMS) |
0.56 |
1.02 |
1.32 |
2.20 |
1.67 |
| Symmetric information counterfactual: | |||||
| Average wealth-equivalent | 100.38 | 100.64 | 100.19 | 100.74 | 100.58 |
| Absolute welfare difference (M pounds) | 43.7 | 72.0 | 82.1 | 169.8 | 126.5 |
| Relative welfare difference (as a fraction of MMS) |
0.26 |
0.23 |
0.21 |
0.26 |
0.25 |
| Mandate 0 year guarantee counterfactual: | |||||
| Average wealth-equivalent | 100.14 | 100.22 | 99.67 | 99.69 | 99.81 |
| Absolute welfare difference (M pounds) | −30.1 | −53.2 | −73.7 | −146.1 | −107.3 |
| Relative welfare difference (as a fraction ofMMS) | −0.18 | −0.17 | −0.19 | −0.22 | −0.21 |
| Mandate 5 year guarantee counterfactual: | |||||
| Average wealth-equivalent | 100.25 | 100.42 | 99.92 | 100.18 | 100.17 |
| Absolute welfare difference (M pounds) | 2.8 | 6.0 | 1.7 | 1.6 | 2.1 |
| Relative welfare difference (as a fraction of MMS) | 0.02 | 0.02 | 0.004 | 0.002 | 0.006 |
| Mandate 10 year guarantee counterfactual: | |||||
| Average wealth-equivalent | 100.38 | 100.64 | 100.19 | 100.74 | 100.58 |
| Absolute welfare difference (M pounds) | 43.7 | 72.1 | 82.3 | 170.0 | 126.7 |
| Relative welfare difference (as a fraction of MMS) | 0.26 | 0.23 | 0.21 | 0.26 | 0.25 |
The first panel presents estimated average wealth equivalents of the annuities under the observed equilibrium, based on the baseline estimates. The column labeled average is an average weighted by sample size. Wealth equivalents are the amount of wealth per 100 units of initial wealth that we would have to give a person without an annuity so he is as well off as with 20 percent of his initial wealth annuitized. The second row presents our measure of MMS as defined in equation (17).
The second panel presents counterfactual wealth equivalents of the annuities under the symmetric information counterfactual. That is, we assign each individual payment rates such that the expected present value of payments is equal to the average expected payment per period in the observed equilibrium. This ensures that each person faces an actuarially fair reductions in payments in exchange for longer guarantees. The absolute diference row shows the annual cost of asymmetric information in millions of pounds. This cost is calculated by taking the per pound annuitized diference between symmetric and asymmetric information wealth equivalents per dollar annuitized (20, given the model) and multiplying it by the amount of funds annuitized annually in the U.K., which is six billion pounds. The relative diference uses the MMS concept as the normalization factor.
The third panel presents the same quantities for counterfactuals that mandate a single guarantee length for all individuals, for the actuarially fair pooling price. Each set of results investigates a different mandate.