Disclosure, hidden charges and indexed pensions
Article
Article Title | Disclosure, hidden charges and indexed pensions |
---|---|
ERA Journal ID | 40194 |
Article Category | Article |
Authors | Beal, Diana (Author), Delpachitra, Sarath (Author) and Grundy, Bruce (Author) |
Journal Title | Agenda: a journal of policy analysis and reform |
Journal Citation | 12 (1), pp. 33-46 |
Number of Pages | 14 |
Year | 2005 |
Place of Publication | Canberra, Australia |
ISSN | 1322-1833 |
1447-4735 | |
Web Address (URL) | http://epress.anu.edu.au/agenda/012/01/12-1-A-1.pdf |
Abstract | This paper analyses the cash flows of lifetime indexed pensions as one source of apparent super-profitability in the funds management industry. We conclude that, in practice, the difference between the amount paid for the pension and the present value of the pension income is huge - around 30% of the amount paid for the pension. With most products, the funds-management industry takes clients' funds, invests to the best of its ability and charges fees for those management services. Risk is borne by the clients. Lifetime indexed pensions are an exceptional product, where managers bear more aspects of risk. Naturally, there must be a payment or reward for bearing risk, but the size of that reward vis-a-vis the incidence of risk is open to question. More importantly the reward is, at present, substantially undisclosed. The next section of the paper describes lifetime indexed pensions and reports a small market survey conducted by the authors, while the next section reports the methodology used and analyses cash flows. The following section argues some possible rationalizations that may be proposed by financial institutions to justify the undisclosed 'fees' while the final section discusses policy issues and proposes minimal disclosure requirements. |
Keywords | retirement; disclosure; hidden charges; indexed pensions |
ANZSRC Field of Research 2020 | 440305. Population trends and policies |
380199. Applied economics not elsewhere classified | |
380107. Financial economics | |
Public Notes | File reproduced in accordance with the copyright policy of the publisher/author. |
Byline Affiliations | Department of Finance and Banking |
School of Accounting, Economics and Finance | |
University of Melbourne |
https://research.usq.edu.au/item/9x7x3/disclosure-hidden-charges-and-indexed-pensions
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