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IAI Actuarial Core Principles · Business Management · Business and consumer needs, the industry value chain and competitive forces

An Indian pension fund manager's trustees need a retirement product that cuts the risk of members outliving their savings. A consultant lists several features. Which feature most directly meets the consumer need for longevity protection?

A lifelong annuity option, possibly inflation-linked, best meets the need, because it converts savings into income that continues for as long as the member lives. Lump sums, lower charges, more fund choice or online statements leave the member exposed to outliving their money.

  1. AA lump-sum withdrawal option at retirement
  2. BA lifelong annuity option, optionally with inflation-linked increasesCorrect
  3. CA lower annual management charge during accumulation
  4. DA wider choice of equity funds during accumulation
  5. A facility for online statements

Explanation

Longevity risk is that income stops before the member dies. Only a lifelong income stream, particularly one that keeps pace with inflation, transfers that risk. A lump sum leaves the member carrying it, and charges, fund choice or statements do not insure against it.

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