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The effect of longevity drift and investment volatility on income sufficiency in retirement

Mayhew, L., Smith, D. & Wright, I. D. (2018). The effect of longevity drift and investment volatility on income sufficiency in retirement. Insurance: Mathematics and Economics, 78, pp. 201-211. doi: 10.1016/j.insmatheco.2017.09.013


In 2014 the Government announced radical proposals which now allow people to withdraw money from their pension pot from age 55, ‘how they want, subject to their marginal rate of income tax in that year’. The main effect of this change will be to put more onus on the individual to make sure they have sufficient resources to last for their retirement, but it also removes the obligation to annuitise their funds at any future age. This paper is concerned with how people can best use their pension pots by aligning them to their personal financial objectives and longevity risks. It finds that for most people annuitising is not the best option, except for a few circumstances, and that draw down is preferable, especially where there is a bequest motive and the individual has assets such as property to fall back on. These options are low risk if simple rules are followed but they are not a substitute for professional advice and should only be used in conjunction.

Publication Type: Article
Additional Information: © 2018, Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Publisher Keywords: Pensions, Longevity drift, Annuitisation, Drawdown
Departments: Bayes Business School > Actuarial Science & Insurance
SWORD Depositor:
[thumbnail of The_effect_of longevity_on_income_sufficiency_Mayhew_et_al_post review_version_final_20_July_2016a_.pdf]
Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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