Annuity Values in Defined Contribution Retirement Systems: The Case of Singapore and Australia

Suzanne Doyle, Olivia S. Mitchell, and John Piggott

Abstract — In this paper we derive and compare the value of life annuity products in an international context. Our specific goal is to assess the money’s worth and adverse selection impact of annuities in two countries — Singapore and Australia — that have mandatory DC-type retirement plans. This similarity in plan type is offset by differences in the two countries’ national retirement policies. Our comparison therefore exploits the natural experiment in annuity pricing and purchase behavior under alternative retirement regimes. The results show that after controlling on administrative loadings, there appear to be important differences in measured adverse selection across countries. Specifically, selection appears to be far stronger in the presence of a generous public benefit scheme that provides a first line of defense against the risk of old-age poverty.