Do not pay for a Danish interest guarantee. The law of the triple blow

Publication: Research - peer-reviewJournal article – Annual report year: 2012

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Do not pay for a Danish interest guarantee. The law of the triple blow. / Guillén, Montserrat ; Konicz, Agnieszka Karolina; Perch Nielsen, Jens; Perez-Marın, Ana M. .

In: Annals of Actuarial Science, Vol. 7, No. 2, 2013, p. 192-209.

Publication: Research - peer-reviewJournal article – Annual report year: 2012

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Author

Guillén, Montserrat ; Konicz, Agnieszka Karolina; Perch Nielsen, Jens; Perez-Marın, Ana M. / Do not pay for a Danish interest guarantee. The law of the triple blow.

In: Annals of Actuarial Science, Vol. 7, No. 2, 2013, p. 192-209.

Publication: Research - peer-reviewJournal article – Annual report year: 2012

Bibtex

@article{de2144e46f834decb5a78e655c34d1df,
title = "Do not pay for a Danish interest guarantee. The law of the triple blow",
keywords = "Retirement wealth, Pension fund performance measurement, Retirement saving schemes",
publisher = "Institute of Actuaries",
author = "Montserrat Guillén and Konicz, {Agnieszka Karolina} and {Perch Nielsen}, Jens and Perez-Marın, {Ana M.}",
year = "2013",
doi = "10.1017/S1748499512000176",
volume = "7",
number = "2",
pages = "192--209",
journal = "Annals of Actuarial Science",
issn = "1748-4995",

}

RIS

TY - JOUR

T1 - Do not pay for a Danish interest guarantee. The law of the triple blow

A1 - Guillén,Montserrat

A1 - Konicz,Agnieszka Karolina

A1 - Perch Nielsen,Jens

A1 - Perez-Marın,Ana M.

AU - Guillén,Montserrat

AU - Konicz,Agnieszka Karolina

AU - Perch Nielsen,Jens

AU - Perez-Marın,Ana M.

PB - Institute of Actuaries

PY - 2013

Y1 - 2013

N2 - We have investigated the performance of pension schemes of with-profit policies containing a guaranteed minimum rate of return and we have found that the price of the guarantee measured in terms of lost returns is enormous. We use simple simulations rather than complex pricing methods to illustrate that the price of an interest guarantee is high in pension products that are currently commercialised in the market. We have found that the customer loses up to about 0.75% yearly in the rate of return when an interest guarantee is purchased, compared to the return of an equivalent saving strategy with the same risk at the level 95%. This can explain why such arrangements are not widely popular. Our approach can be used to inform clients, who are not experts in modern financial models, the impact of paying for an interest guarantee.

AB - We have investigated the performance of pension schemes of with-profit policies containing a guaranteed minimum rate of return and we have found that the price of the guarantee measured in terms of lost returns is enormous. We use simple simulations rather than complex pricing methods to illustrate that the price of an interest guarantee is high in pension products that are currently commercialised in the market. We have found that the customer loses up to about 0.75% yearly in the rate of return when an interest guarantee is purchased, compared to the return of an equivalent saving strategy with the same risk at the level 95%. This can explain why such arrangements are not widely popular. Our approach can be used to inform clients, who are not experts in modern financial models, the impact of paying for an interest guarantee.

KW - Retirement wealth

KW - Pension fund performance measurement

KW - Retirement saving schemes

U2 - 10.1017/S1748499512000176

DO - 10.1017/S1748499512000176

JO - Annals of Actuarial Science

JF - Annals of Actuarial Science

SN - 1748-4995

IS - 2

VL - 7

SP - 192

EP - 209

ER -