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Chapter 18. Notional wealth annuity
Definition
18.1. A notional wealth annuity is defined as the transformation of the value of a household's stock of assets/liabilities into a right to be paid a (notional) fixed annual sum of money for a defined lifetime. All wealth, whether held as non-financial or as financial assets should be annuitised.
18.2. When using the measure of annuitised wealth, the annuity must contain a discounting for the return from the wealth already counted in the current account. These returns comprise property income, imputed rent from owner-occupied dwelling and the income from services provided by consumer durables. If these items are not deducted from the full annuity they will result in double counting of these components.
18.3. The value of the annuity is calculated using the value of the stock at the beginning of the reference period.
Classification
18.4. Notional wealth annuity may be classified as the notional flow from:
- equity in owner-occupied dwelling
Comments
18.5. A considerable amount of research needs to be carried out to determine the most suitable method of calculating annuitised wealth. In particular, consideration needs to be given to:
- the period over which the wealth should be annuitised
- notional interest rates to be used
- treatment of 'negative wealth' i.e. household liabilities where these are greater than household assets.