Annuitisation and cross-subsidies in a two-tiered retirement saving system

Benjamin Avanzi, Sachi Purcal

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


We develop a generalisation of the World Bank (1994) model of forced saving for retirement. This broader model consists of two tiers of second pillar savings – mandated and non-mandated (voluntary). Furthermore, the government can set two types of guarantees on the first (mandated) tier – investment returns and annuity prices – leading to possible cross-subsidisation between the tiers. This has the potential to induce social redistribution, foster a liquid private market for life annuities, and obviate some of the investment risk and annuity price risk that retirees face. We formulate a quantitative model of financial flows within such a system, which explains the mechanism by which cross-subsidisation occurs. Based on this analysis, a taxonomy of two-tiered retirement systems is presented, that is based on the choices that the government makes.
Original languageEnglish
Pages (from-to)234-252
Number of pages19
JournalAnnals of Actuarial Science
Issue number2
Publication statusPublished - Sept 2014


  • Retirement savings
  • Pensions
  • Regulation
  • Annuitisation


Dive into the research topics of 'Annuitisation and cross-subsidies in a two-tiered retirement saving system'. Together they form a unique fingerprint.

Cite this