Longevity Risk and Annuities in Singapore

Compulsory annuitization is often proposed as a compelling solution under defined-contribution pension schemes to help plan participants manage their longevity risk. This paper explores the current annuity market in Singapore and discusses the pros and cons of a proposal to mandate annuitization under the Singaporean national pension system -- the Central Provident Fund (CPF). We evaluate the pricing of various annuity policies in order to assess whether plan participants might benefit from higher annuity returns per dollar premium and lower adverse selection costs under the new annuitization mandate. Using 2007 pricing and mortality data, we aim to compute the money's worth value for life annuities available to a 55- year-old retiree in the Singapore population in order to assess whether private annuity providers currently offer good value-for-money annuities. The paper will also feature cross-country comparisons, as well as sensitivity analysis by varying mortality and interest rate assumptions. In addition, we analyze the payout structure of the newly-launched government-offered life annuities and assess their money’s worth values in order to draw conclusions about how the government's entry into the annuity market may impact private providers and participants' choice.