Unisex Life Care Annuities Embedded in a Pay-as-You-Go Pension System: Analysing the Issue of Gender Redistribution

Abstract

This paper deals with the idea of converting retirement benefit into a life care annuity with graded benefits using a pre-existing public pay-as-you-go pension scheme. Based on accurate biometric data from Australia and the US, the paper shows that using gender-neutral annuity factors to compute the initial benefit involves a large increase in ex-ante gender redistribution compared to a system without long-term coverage. In spite of the very different biometric data, the results are surprisingly similar for both countries. To disentangle the hidden redistribution, a methodology based on conversion (actuarial) factors is used. The value of the actuarial factor relies on a multistate framework in which transitions are modeled from the initial health state to the absorbing state. We also look at what might happen if an annuitant’s initial heath state is not able when they become a beneficiary.

Keywords: Gender, Life Care Annuities, Long-Term Care Insurance, Multistate model, Redistribution, Retirement

JEL Classification: G22, H55, I13, J14, J26