A General Equilibrium Analysis of Annuity Rates in the Presence of Aggregate Mortality Risk * Justin van de Ven † , and Martin Weale ‡ National Insitute Discussion Paper No. 282 Abstract This paper explores the pricing of annuities in a structural overlapping gen- erations model in which the mortality rate of people when old is uncertain. A market clearing price for annuities is established below the fair price. At this price the willingness of old people to pay the young to carry old people’s aggregate mortality risk is balanced by the willingness of the young to bear the risk. The model suggests that aggregate mortality risk is unlikely to be a major influence on annuity pricing. Keywords: Annuity Rates; Tontines; Aggregate Mortality Risk; Risk Premium JEL Classification: D1, G11, G12 * We should like to thank participants at the DEMWEL conference, Kittil¨ a, March 2006, and espe- cially Martin Flod´ en and Nico Keilman for valuable comments. The usual disclaimer applies. † NIESR. jvandeven@niesr.ac.uk ‡ NIESR. mweale@niesr.ac.uk 1