An empirical test of competing hypotheses for the annuity puzzle

Goedde-Menke, Michael; Lehmensiek-Starke, Moritz; Nolte, Sven

doi:10.1016/j.joep.2014.04.001

Cited by 29 publications

(28 citation statements)

References 50 publications

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“…() use subjective mortality scaling factors for different cohorts and ages obtained from empirical data and show that pessimism with respect to one's own life expectancy among 50‐ to 59‐year‐old individuals can help explain low annuity uptake. Goedde‐Menke et al.’s () article is the only one with opposite results, showing that, for the considered sample, individuals expecting to live longer than people of their own age and gender are less likely to possess annuities. Finally, in a framing experiment, Beshears et al.…”

Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 84%

“…(), and Pang and Warshawsky () are an exception to this rule, showing that the risk of health expenses can increase the demand for annuities, while Goedde‐Menke et al. () find no dependency between liquidity concerns and annuitization, and Ai et al. () show that the impact of health shocks on annuitization rates depends on the level of wealth.…”

Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 99%

“…() and Goedde‐Menke et al. () further investigate the impact of framing on the willingness to annuitize (see also Benartzi et al., ; Beshears et al., ) and show that putting annuities in a consumption frame, that is, emphasizing the fact that these products provide insurance against longevity risk, rather than an investment frame (speaking of “returns”), increases the demand . Agnew et al.…”

Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 99%

“…Insurance fallacy is a phenomenon that describes the scenario in which individuals consider insurance as protection against bad events, which means that a longer life, being a positive event, does not require insurance (see Goedde‐Menke et al., ).…”

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confidence: 99%

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What Do We Know About Annuitization Decisions?

Alexandrova¹,

Gatzert²

2019

Risk Manage Insurance Review

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Against the background of aging societies and increasing life expectancies, the protection of individuals from outliving their savings has become increasingly relevant. Annuities represent insurance against longevity risk and can prevent old‐age poverty. The aim of this article is to present the current state of theoretical, empirical and experimental evidence with regard to annuitization decisions. Toward this end, we conduct a systematic literature review that includes 89 articles. Based on this, we study welfare effects of mandatory annuitization, annuitization rates and the optimal fraction of wealth to be annuitized, as well as determinants of retirees’ choice to annuitize and their impact on annuity demand. Finally, we present possible solutions for overcoming the low uptake of annuities based on its causes. One main result is that behavioral biases in annuitization decisions particularly require considerably more theoretical research and empirical evidence, and that theoretical models already appear to well explain empirically observed annuitization rates.

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Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 84%

Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 99%

Section: Three Aspects Of Annuitization Decisionsmentioning

confidence: 99%

mentioning

confidence: 99%

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What Do We Know About Annuitization Decisions?

Alexandrova¹,

Gatzert²

2019

Risk Manage Insurance Review

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“…The lack of influence of dispositional measures on lump‐sum choice is perhaps surprising. Behaviors that are related to complex asset management and controlling, such as planning and self‐efficacy investigated in the current study, have been positively associated with behavior in the decumulation phase, particularly with a greater interest in annuity investment decisions (Brown, ; Duxbury et al, ; Goedde‐Menke, Lehmensiek‐Starke, & Nolte, ). However, dispositional measures in annuity decision‐making were typically measured in hypothetical rather than real decision situations.…”

Section: Discussionmentioning

confidence: 74%

Pension Freedom Day in the United Kingdom: Early evaluation of consumer response

Loibl

Summers

McNair

et al. 2018

Int J Consumer Studies

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Understanding decumulation decisions in retirement is an important component of public policy that influences pension regulations in aging societies. This research examined a recent, substantial change to pension regulation in the United Kingdom: the newly established flexibility to obtain a lump‐sum payout from personal or occupational pension savings. Conducting an online survey of individual’s eligible to take advantage of the Pension Freedom regulation, we find that almost half of study participants plan to obtain a lump‐sum payout, on average £33,741, intending it for an average of three different investments or purchases. The decision to obtain a lump‐sum withdrawal was related to better knowledge of the new regulation. It was also more likely among older respondents and those not worried about a decline in standard of living during retirement. Dispositional measures did not affect the lump‐sum decision. Close to one‐third of study participants still planned to invest retirement savings into an annuity, especially those who retire at a later age, have concerns about care costs and worry about decline in standard of living in retirement. Comments about the changes to pension regulation were slightly more positive than negative. From our analysis of the effect of the Pension Freedom regulation on savings decumulation decisions, we conclude that the new Pension Freedom regulations do meet consumer demands, and demonstrate that pension knowledge and retirement expectations, in particular, influence consumer evaluations. We further conclude that annuity investments continue to play a role for older adults in the United Kingdom, especially for those concerned about meeting financial needs during retirement.

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Distributive and Actuarial Elements

Iparraguirre

2019

Economics and Ageing

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An empirical test of competing hypotheses for the annuity puzzle

Cited by 29 publications

References 50 publications

What Do We Know About Annuitization Decisions?

What Do We Know About Annuitization Decisions?

Pension Freedom Day in the United Kingdom: Early evaluation of consumer response

Distributive and Actuarial Elements

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