Longevity Insurance Benefits for Social Security: International Experience

Abstract

Longevity insurance benefits are deferred annuities that start payment at an advanced age at which a substantial proportion of the birth cohort has died. In high-income countries, that would mean that these annuities would start for people in their early 80s, but when social security programs were starting in many countries, the age at which longevity insurance annuities would start was substantially younger. Originally, public pension programs in a number of countries were structured as a longevity insurance program, with roughly 50% of those entering the workforce surviving to receive the benefits because of relatively high benefit eligibility ages. Over time, however, as life expectancy has improved, the benefits these programs provide have slowly transformed into benefits that most people entering the work force ultimately receive. This paper argues that reintroduction of a longevity insurance benefit as part of public pensions could be an important policy in particular because this benefit is generally not provided by the private sector. These annuities would benefit some older retirees, particularly in countries with modest public pension benefits, but the private sector has problems in providing them, particularly when they must be provided on a unisex basis. This chapter surveys countries that provide this type of benefit and also considers proposals for the provision of this benefit in the United States and Canada. The addition of these benefits to social security may be particularly desirable as part of a reform where other changes being made to maintain solvency are resulting in reduced generosity of benefits.

Research on Poland included in this paper was financed from research grant number UMO-2013/10/M/HS4/00466 from National Science Centre in Poland.