Prague Economic Papers 2020, 29(5):505-521 | DOI: 10.18267/j.pep.743

Valuation of Equity Release Contracts in Czech Republic, Republic of Poland and Slovak Republic

Agnieszka Marciniuka, Emília Zimkováb, Vlastimil Farkašovskýb, Colin W. Lawsonb,c
a Wroclaw University of Economics, Faculty of Management, Poland
b Matej Bel University in Banská Bystrica, Faculty of Economics, Slovak Republic
c University of Bath, United Kingdom

An ageing European population and, therefore, a rising dependency ratio of retirees to the working population, strongly suggests that a pension funding gap will be a key social issue in future. Yet many older people have significant real estate assets that they could access using equity release products. They could sell their assets in exchange for lifelong or temporary monthly payments. Equity release products are relatively new to Poland, but are not yet offered by commercial banks in Czechia and Slovakia. This paper estimates the potential benefits of marriage reverse annuity, and reverse mortgage contracts, using the Svensson model function, and empirical property data from selected Czech, Slovak and Polish cities. The results are also compared to the average pension of inhabitants in the selected cities. It is shown that there is substantial scope for boosting retirement income in all the cases considered, though the precise size of the increase depends on factors such as contract buyers' age and life expectancy, the value of their assets, the payment consequences of a spouse's death, and contract suppliers' pricing policies.

Keywords: Equity release contract, reverse annuity contract, reverse mortgage, pension funding gap, Svensson model
JEL classification: C41, C60, G12, G17, G22, J10

Received: January 30, 2019; Revised: October 11, 2019; Accepted: December 10, 2019; Prepublished online: May 11, 2020; Published: October 16, 2020  Show citation

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Marciniuk, A., Zimková, E., Farkašovský, V., & Lawson, C.W. (2020). Valuation of Equity Release Contracts in Czech Republic, Republic of Poland and Slovak Republic. Prague Economic Papers, 29(5), 505-521. doi: 10.18267/j.pep.743
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