Providing Longevity Insurance Annuities: A Comparison of the Private Sector versus Social Security

Abstract

Recent U.S. Treasury Department proposals have focused attention on longevity insurance annuities that might be offered through pension plans. These are deferred annuities that begin payment at advanced older ages, such as age 82. However, pension plans are unlikely to offer longevity insurance annuities, because the unisex requirement makes them less advantageous for men, whose life spans are shorter, on average, than those of women. The United Kingdom has by far the world’s largest annuity market, and some U.K. insurance companies used to provide longevity insurance annuities; currently no companies do so. These annuities would benefit some older retirees, but the private sector has problems providing them. The author proposes that longevity insurance annuities be offered as a benefit through Social Security. As part of a package of Social Security reform, which no doubt will include benefit cuts, these benefits could be targeted to the needs of a vulnerable group—people at advanced ages with low benefits.