Bringing cost transparency to the life annuity market

•We propose a new type of pooled annuity fund.•The fund is actuarially fair at every instant, irrespective of group heterogeneity.•It enables mortality gains, investment returns and costs to be separated.•Participants can exit at any time without paying a financial penalty.•Participants have genuine individual investment freedom.

The financial industry has recently seen a push away from structured products and towards transparency. The trend is to decompose products, such that customers understand each component as well as its price. Yet the enormous annuity market combining investment and longevity has been almost untouched by this development.We suggest a simple decomposed annuity structure that enables cost transparency and could be linked to any investment fund. It has several attractive features: (i) it works for any heterogeneous group; (ii) participants can leave before death without financial penalty; and (iii) participants have complete freedom over their own investment strategy.