The appropriate policies in this area will vary significantly from country to country. In some cases it may be appropriate to continue restricting lump-sums, but adopt a more liberal approach to the design of retirement products. For example, the regulation of phased withdrawals and term annuities may be more liberal, allowing designs that enable a faster withdrawal of funds. Term annuities play an important part in Denmark and Sweden and have a rapidly growing presence in Australia. Likewise, variable and adjustable annuities may be introduced without the obligation of a minimum fixed annuity component.

# **5.3 The Regulation of Pricing and Marketing Policies**

The experience of Switzerland indicates that pervasive regulation of products and prices entails both benefits and costs. The use of a minimum annuity conversion factor for joint life annuities avoids an excessive dispersion of annuity prices across annuitants with similar characteristics and also protects retiring workers of different cohorts from large fluctuations in market prices of both assets and annuities. A high level of price dispersion and exposure to annuitization risk are present in countries that do not regulate prices.

However, rigid price regulation may generate large income transfers across annuitants of different gender and marital status and may even jeopardize the solvency of annuity providers if it is not subject to flexible adjustment to market prices. The Swiss authorities are still grappling with the problem of defining a pricing formula that will protect annuitants from price dispersion and annuitization risk while being flexible enough to avoid unintended intra and inter-generational transfers and cope well with changing financial market conditions.

The regulation of pricing policies for variable annuities is confronted with some difficult challenges. In Denmark and Sweden, where these products are widespread, pricing issues, such as the calculation of initial payments and profit-sharing rules, are governed by collective labor agreements. As a result, they require less government regulation. But in systems that are based on non-employer-based individual accounts, pricing policies need to be subject to government regulation and oversight. The calculation of initial payments may need to be regulated to prevent deceptive offers. And a central register of performance data of different providers, emphasizing operating fees, profit-sharing rules and consistency of investment policies rather than just past investment returns, should be created to enhance the transparency of the system.<sup>24</sup> The regulation of the marketing of retirement products, especially life annuities, is another area of major policy interest in countries with open annuity markets. Adopting an electronic quotation system, such as the one introduced in Chile in 2004, should receive ample consideration. This would be a centralized service that would compile and validate

> 24 If the authorities choose to specify a low technical interest rate, say 0 or1 percent, for the calculation of initial payments in order to provide greater scope for future bonuses, they should avoid the trap of applying the same technical rate for the calculation of technical reserves. The latter should require the use of marketbased maturity-dependent discount rates to ensure a proper valuation of reserves and allow room for investments in equities and other real assets.

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