At 17:40 28/03/2011 +0100, jay ginn wrote (n part):
>Now, are you saying that annuities should reflect the LE of each of
>these categories - class and ethnicity - as well as sex?
>
>If you took that line to its logical conclusion, you would end up with
>each individual having an annuity calculation based on his/her genetic
>make-up, educational level, parents background, mother's nutrition and
>drug status during pregnancy, plus own residential, occupational,
>marital and fertility history, sexual orientation, stressful life
>events and more, because these have statistical relationships with
>health and/or mortality.
Yes, I'm saying exactly that (within the bounds of what is possible) - as I
wrote before, an annuity calculation for an individual should ideally take
into consideration all available information which aids prediction of that
individual's life expectancy.
Think about what is happening. It's a speculative investment. One is
handing over a lump of capital to a third party and, in return, is getting
a guaranteed return each year (or month, or whatever) for the rest of one's
life. In order to be fair to both the individual and the third party, the
amount paid out should be based on the 'best available estimate' of the
life expectancy for the individual, based on all available information.
Both parties are obviously gambling - the individual is gambling that they
will live longer than 'expected', and therefore end up with income for
longer than if they had chosen to go without an annuity and 'use up' their
capital at such a rate that it fell to zero at the moment of their death
(or, alternatively, more regular income in real time than if they had been
cautious and rationed their use of capital so that it would last far beyond
their predicted date of death). The annuity provider is gambling that the
individual will die sooner than 'expected'. However, from both their
points-of-view, the reasonableness of the gamble is determined by a good as
possible estimate of the expected period of survival.
Although most commonly provided by insurance companies, this sort of
speculative investment is rather different from other types of 'insurance'
(including life insurance), which are more like forms of financial
socialism - i.e. with the intent of spreading the cost of risk across
individuals (rather than to spread the return from a capital investment for
one individual over their remaining lifetime).
If two people of the same age hand over, say, £100,000 to an annuity
provider, it would be ridiculous for them both to be given the same annual
(or monthly, or whatever) return for the remainder of their lives if, by
virtue of whatever factors, one had a life expectancy of 5 years and the
other 20 years, wouldn't it?
Kind Regards,
John
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