Schulich Prof finds Retirement Issues Debated today Prevalent in 18th Century
Schulich Finance Professor Moshe Milevsky recently had an article published in the Financial History Review (Cambridge University Press) titled “Adam Smith’s reversionary annuity: money’s worth, default options and auto-enrollment”. Adam Smith, widely considered to be the father of economics and capitalism, is the author of Wealth of Nations, first published in 1776. The book offers one of the world’s first connected accounts of what builds a nations’ wealth and has become a fundamental work in classical economics.
While on sabbatical last year at the University of Edinburgh, Milevsky was granted access to archives of the Presbyterian Church of Scotland’s annuity fund for widows and orphans, the first longevity-risk pooling arrangement of its kind in the world, based on sound financial and actuarial principles. In addition to Milevsky stumbling on the documentary evidence that Smith participated the research suggests that managers of the plan, who were ministers in the Church, had a keen understanding of personal financial and insurance challenges of planning for old age.
The fund offered participants a choice of levels at which to contribute investment savings, ranging from 2 to 10 percent of their wages. The life-contingent benefits were in the form of a reversionary annuity to a spouse and/or lump sum death benefit to children. This annuity fund was launched 280 years ago, in mid-March 1744.
The scholarly research contribution of the article is to carefully compile and analyze the archival data documenting individual choices, and to demonstrate that debates around default saving options, auto-enrollment and anti-selection, which infuse the “retirement choice architecture” literature in the twenty-first century, were prevalent in the mid-eighteenth. Professor Milevsky is expanding on this research work with a forthcoming book: “The Religious Roots of Longevity Risk Sharing” (Palgrave Macmillan).
