Seminar by Prof. Runhuan Feng, Tsinghua University

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 disregarded 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.

Feng is a Chair Professor in the School of Economics and Management at Tsinghua University, where he is also the Director of China Center for Insurance and Risk Management. He is a Fellow of the Society of Actuaries and a Chartered Enterprise Risk Analyst. Prior to joining Tsinghua, he was a tenured Professor, the State Farm Companies Foundation Endowed Professor at the University of Illinois at Urbana-Champaign, the Faculty Lead for the Finance and Insurance sector at the Discovery Partnership Institute of the University of Illinois System. He is currently a Co-Editor of North American Actuarial Journal and the Executive-Editor-in-Chief of Risk Sciences, and an Associate Editors for numerous other journals. He won numerous international awards including the 2019 Global Association of Risk Management Professionals’ Best Paper Prize for Quantitative Methods in Finance, and the 2022 Jeffrey Haywood Prize by the Institute and Faculty of Actuaries.