Date: 24 March 2015

Time: 10.30 am – 12.00 pm

Venue: Lecture Hall 3, Faculty of Economics and Administration, University of Malaya

Abstract

This presentation explores why both demand for and supply of private sector life annuities are low across much of the world and what government should and could do about a set of identified or conjectured market failures. As regards the demand side, we are not any closer to a solution of the “annuity puzzle” raised some 25 years ago that the claimed stark welfare benefits of an annuity under uncertainty of end-of-life are not matched by consumer demand. There is still conceptual and empirical uncertainty about the main classical deterrents, i.e. the role of public annuities, family and bequest. The last 10 years have seen many new arguments about the role of behavioral limitations to explain a sizable part of the puzzle, and more recently the role of financial knowledge and more broadly financial capability in the low demand for life annuities. As regards the supply side, the view on key restrictions has also not changed in recent decades: regulations, investment risk, and longevity risk. Actually more recent developments have made them even more relevant. This has re-raised suggestions to share investment and longevity risk with the annuitant, and to use more deferred annuities. Yet shedding too much of the guarantees makes life annuities perhaps cheaper but also less attractive compared to promoted alternatives. In view of the many deficiencies on the demand and supply side of annuities, there seems ample role for government to get involved as regulator, market creator and facilitator, information creator and mediator, etc.

About the Speaker

Robert Holzmann, professor of economics, is the Chair of Old Age Financial Protection (OAFPC) at the Faculty of Economics and Administration, University of Malaya since 2012. He is inter alia Honorary Chair, Centre of Excellence in Population Ageing Research (CEPAR), University of New South Wales and Research Fellow of Institute for the Study of Labor (IZA), Bonn and CESifo Munich. He also serves as consultant to the World Bank on financial literacy & education, migration, and pension issues. Before his return to academia, he was the Research Director of the Labor Mobility Program (Marseille Center for Mediterranean Integration), Senior Advisor of the Financial Literacy & Education Program (Russia Trust Fund), and for 12 years Sector Director and Head of the Social Protection & Labor Department leading, inter alia, the strategic and conceptual work on pensions and labor at the World Bank. Before joining the World Bank he was professor of economics and director to the European Institute at the University of Saarland, Germany, professor of economics at the University of Vienna, Austria, and senior economist at IMF and OECD. He was also Visiting Professor at various universities in Japan, Chile and Austria, and lectured at Harvard University (USA) and Oxford University (UK). His research and operational involvement extends to all regions of the world, and he has published 34 books and over 150 articles on social, fiscal and financial policy issues.

His strength is strategic thinking, research organization, and innovative research. He was the lead-author of the World Bank’s 2001 Social Protection strategy that helps develop a new sector at the Bank to world-wide recognition. The Social Protection Department is now one of the leading institutions in this area and the social risk management framework underlying the strategy became an established development paradigm. He has a broad interest in economic issues covering social, fiscal and financial issues. His life-long specialization is pensions where he is considered as one of the world’s leading experts. His most recent and ongoing research and country’ consultations cover the areas of financial literacy and education, the economics of aging, migration and labor markets.