Decentralized Annuity: A Quest for the Holy Grail of Lifetime Financial Security

TL;DR

This paper introduces a decentralized annuity framework that aims to improve lifetime financial security by addressing limitations of traditional pension plans through enhanced fairness, flexibility, and social welfare.

Contribution

It proposes a novel decentralized annuity model that outperforms traditional plans in fairness and social welfare, supported by theoretical analysis and practical examples.

Findings

Decentralized annuities can outperform self-managed plans (DC) in certain conditions.

They offer comparable benefits to traditional defined benefit (DB) plans, especially with larger participant pools.

The framework enhances individual rationality and social welfare in retirement planning.

Abstract

This paper presents a novel framework for decentralized annuities, aiming to address the limitations of traditional pension systems such as defined contribution (DC) and defined benefit (DB) plans, while providing lifetime financial support. It sheds light on often ignored pitfalls within current retirement schemes and introduces individual rationality properties. The research delves into various fairness concepts that underpin existing plans, emphasizing that decentralized annuities, while meeting similar fairness criteria, offer enhanced flexibility for individual rationality and improved social welfare for all participants. Using theoretical models and examples, we demonstrate the potential of decentralized annuities to outperform self-managed plans (DC) and to produce effects comparable to defined benefit (DB) plans, particularly within larger participant pools. The paper concludes by exploring the managerial implications of decentralized annuities and laying the groundwork for the further advancement of equitable and sustainable decentralized annuity systems.