The demographic, economic and social changes that have characterized the last decades and the dramatic financial crisis that has taken place since 2008, led to a demand for structural changes in the pension sector and a growing interest in individual pension products. Hence the need, for most of the elderly people, to liquidate their fixed assets, which are usually their living homes. This highlights products such as reverse mortgages and domestic reversibility plans. Within this context, we propose a contractual scheme where an immediate life annuity is obtained by paying a single-premium in form of real estate rights (RERs), for example by transferring to an insurer the full or the bare property of a house or a similar realty. The level of the installments arises from the fair value of the transferred RER at the contract’s issue, the life expectancy of the insured and the expected growth rate of the real estate market value. The contract lines are developed by considering the control of the financial risk inherent in the contract itself, because of the prospective changes in the value of the RERs and the insurer leverage. Finally we provide some numerical evidences of the proposed contractual structure, in order to compare the level of the installments according to the house return forecasts of different European countries.

Pension Schemes versus Real Estate

E. Di Lorenzo;R. Tizzano
2021

Abstract

The demographic, economic and social changes that have characterized the last decades and the dramatic financial crisis that has taken place since 2008, led to a demand for structural changes in the pension sector and a growing interest in individual pension products. Hence the need, for most of the elderly people, to liquidate their fixed assets, which are usually their living homes. This highlights products such as reverse mortgages and domestic reversibility plans. Within this context, we propose a contractual scheme where an immediate life annuity is obtained by paying a single-premium in form of real estate rights (RERs), for example by transferring to an insurer the full or the bare property of a house or a similar realty. The level of the installments arises from the fair value of the transferred RER at the contract’s issue, the life expectancy of the insured and the expected growth rate of the real estate market value. The contract lines are developed by considering the control of the financial risk inherent in the contract itself, because of the prospective changes in the value of the RERs and the insurer leverage. Finally we provide some numerical evidences of the proposed contractual structure, in order to compare the level of the installments according to the house return forecasts of different European countries.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11588/750649
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