Risks in pensions and annuities : efficient designs

This paper considers alternatives to disperse the accumulated pension rights during the liquidation phase or retirement. First, the paper classifies the risks that affect pensioners, discusses the defined benefit and defined contribution options, and classifies pension contracts according to thetype of risk they transfer to worker. It considers fixed annuities, variable annuities, CREF annuities, and programmed withdrawal. This part is a description of the production function for pensions and annuities. Second, the paper offers a discussion of the restrictions that should be imposed by mandatory pension systems on the menu of pension contracts. One section discusses whether lump sum withdrawals should be allowed and the other discusses if there should be a mandate to annuitize wealth. The argument that the annuitization should be mandated to prevent adverse selection is rejected on the basis of Chilean evidence.