The purchase of individual life-annuities: a description of the french institutional setting

In addition to the pensions delivered by the mandatory social security system, different schemes offer in France the option to purchase private life annuities. These individual annuities are provided by numerous and heterogeneous institutions that rely on more or less rigorous prudential rules and are subjected to highly disparate fiscal laws. Mortality and financial risks are differently covered whereas the accessiblity to life annuities appears unequal. Undoubtedly this disparity impairs the development of such products: very few individuals purchase private life annuities and the total amount of annuitized financial assets is rather low. Indeed, various restrictive institutional factors tend to strengthen the natural propensity of individuals to favour liquid and transferable assets. Although long term savings benefit from an attractive taxation, it is generally not fiscally advantageous to annuitize the accumulated wealth. Other factors lead to inefficiency on the market for annuities: limitation to competition, constraints on the use of mortality tables favouring adverse selection, restrictive prudential rules.