Disclosure, hidden charges and indexed pensions

Beal, Diana and Delpachitra, Sarath and Grundy, Bruce (2005) Disclosure, hidden charges and indexed pensions. Agenda: A Journal of Policy Analysis and Reform, 12 (1). pp. 33-46. ISSN 1322-1833

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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.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Deposited with permission of publisher.
Faculty / Department / School: Historic - Faculty of Business - Department of Finance and Banking
Date Deposited: 11 Oct 2007 00:17
Last Modified: 24 Jan 2018 06:55
Uncontrolled Keywords: retirement; disclosure; hidden charges; indexed pensions
Fields of Research : 16 Studies in Human Society > 1603 Demography > 160305 Population Trends and Policies
14 Economics > 1402 Applied Economics > 140299 Applied Economics not elsewhere classified
14 Economics > 1402 Applied Economics > 140207 Financial Economics
Socio-Economic Objective: C Society > 94 Law, Politics and Community Services > 9401 Community Service (excl. Work) > 940108 Distribution of Income and Wealth
URI: http://eprints.usq.edu.au/id/eprint/222

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