In the News: Canadian Annuity Prices Show Asymmetrical Response to Interest Rate Shifts

Canadian annuity prices have an asymmetrical response to changing interest rates, making it more expensive to de-risk defined benefit pension plans shortly after rates rise, according to new research.

“In Canada, annuity providers are prompt when it comes to raising prices when interest rates go down and slower when interest rates go up,” says Mark Kamstra, professor of finance at York University’s Schulich School of Business. “That’s bad for buyers.”

The research, conducted alongside Narat Charupat, professor of finance at McMaster University’s DeGroote School of Business, is part of a broader collaboration to study the efficiency of the Canadian annuity market. “That’s our big picture,” says Kamstra. “The problem is it requires us to make a lot of assumptions. The idea [behind focusing on annuity price changes following interest rate shifts] was to look at something smaller and with fewer assumptions.”

Read the full article published in Benefits Canada.

Narat Charupat

Professor, Finance

Professor Charupat has conducted research in the areas of financial innovation, security designs, annuity and insurance products, arbitrage relationship, commodity investment and behavioural finance. He has taught courses in financial derivatives, international finance and personal finance.