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This chapter examines the structure and prevalence of annuity markets in a number of selected countries around the world: Australia, Chile, Germany, Italy, Singapore, Sweden, Switzerland, and USA. It provides an international context for annuity markets.

India will need to develop a robust annuity market if it is to enable its rapidly aging population to address longevity risk. As the fraction of the aged triples by 2050, driving a huge potential demand for annuity-type products will need to be matched by responses from annuity providers. Developing a deeper and broader market for annuities will require disaggregated morbidity and mortality databases for better price discovery, supply of financial instruments enabling better matching of assets and long-term liabilities, innovations in annuity products and distribution channels, greater financial literacy, and more robust regulation.

This chapter describes the operation of both the compulsory pension annuity and voluntary annuity markets in the United Kingdom, and evaluates prices using a money's worth approach. This chapter finds that the money's worth was about 0.90 in 2004 but it then fell to about 0.80, although there is uncertainty about the appropriate mortality table. The chapter suggests that the level of the money's worth is comparable to that of other financial products and it considers possible reasons for the recent fall.

This chapter explores the workings of the German private annuity market to evaluate whether annuities are delivering an adequate value for money by measuring their money's worth. This chapter examines key features of the German private annuity market and give a comprehensive description of the main product groups, taking into consideration the statutory obligation to distribute substantial parts of insurer's annual profits to the annuitant. Relying on a large dataset covering about 90 percent of the German market, it calculates money's worth ratios for private payout annuities and trace long-term developments.

While retirement income products have become more important in Australia in recent years, the growth in these has been predominantly in phased withdrawal products which offer no longevity insurance. The life annuity market has virtually disappeared, exposing Australians to much greater uncertainty about their well-being in later life than is necessary. This chapter suggests that both the private market and government intervention will need to be harnessed to address this issue, including better coordination across key policy agencies. While inaction will lead to a long-term prospect of arbitrary and ill-considered government action to meet the realized uninsured outcome, there are signs of a collaborative effort to revitalize the market.

Lifetime uncertainty represents an additional risk that affects intertemporal choice, because consumers may live longer than expected and run the risk of exhausting the resources accumulated for retirement. Lifetime uncertainty introduces an incentive to consume earlier in life because consumers discount future utility at a higher rate. Second, since in each period there is some positive probability that the consumer will not survive to the next period, the terminal condition on wealth corresponds effectively to a liquidity constraint. Third, with lifetime uncertainty, the decumulation of wealth by the elderly is slower than predicted by the life-cycle model. Finally, the model with lifetime uncertainty generates transfers of wealth across generations even without an express bequest motive, through what we can term involuntary or accidental bequests. The chapter highlights the necessity of accounting for lifetime uncertainty when interpreting empirical age-wealth profiles estimated from microeconomic data.