Pension, to most people, implies aregular payment from a specific age-such as retirement-untildeath. Individual retirement accounts are a vehicle forretirement savings but they do not become a pension in theconventional sense of the word until they are converted toan 'annuity'. How much and what type ofannuitization should be mandated are key policy questionsfacing reformers. Economists believe that annuities can makepeople better off. The intuition is straightforward. Lifeexpectancy is normally uncertain. So people would have tospend accumulated wealth slowly after retirement to ensurean adequate income should they live a long time. This kindof self-insurance is costly because it increases the chancesthat people will consume less than they could have if theyknew when they were going to die. This cost can be reducedwith annuities, which pool risk across individuals.
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