The reasonable pricing of farmland pension and evaluating the expected rate of return

Abstract

In this study, we confirmed that the actuarial equivalence condition can be satisfied when the monthly payment, determined by the current basic actuarial model of farmland pension, is paid until the loan is terminated through a realistic analysis considering the stochastic processes of the main variables. We then confirmed the fair price level that satisfies the actuarial equivalence condition. According to the results of our analysis, the probability of loss for the farmland pension guarantor was zero when the current monthly payments were paid, and we confirmed that the level of monthly payments should increase from 14.8% (age 60) to 7.7% (age 80) to ensure a fair price. We confirmed that farmland pensioners' expected rates of return increased with time, and from the crossover point, the pattern of increasing speed was relatively faster. The fair price suggested by our analysis will be helpful for a farmland pension provider to improve the current product hereafter and the expected rates of return; it is expected to be a useful indicator for older adult farmland owners when they want to choose pension products.