Annuity conversion rate and guaranteed annuity table

At retirement, accumulated capital can be converted into a lifetime annuity. The conversion rate says how much annual annuity each euro of capital buys: it depends on the annuitant's age, the mortality table, which says how long the annuitant will live on average, the technical rate, which says at what yield the insurer discounts future payments, charges and the options chosen, spouse's reversion, guaranteed period. In France, annuities are calculated on regulatory generational tables, which build in future mortality improvement by year of birth. Two regimes coexist. Most often, the table is the one in force at payout: the saver bears the risk that life expectancy has improved during the savings phase. With a guaranteed annuity table, the table is locked in at inception or at the time of payment: the insurer bears this longevity risk for decades. This option proved very costly for some British insurers: contracts sold in the 1970s and 1980s guaranteed conversion rates that became very favorable to policyholders when interest rates collapsed and longevity improved. For the policyholder, the conversion rate is the figure to compare: two contracts with the same capital can produce annuities that differ by 15 percent.