Subjective Life Expectancy and Private Pensions

In economics it has traditionally been assumed that people make all their decisions like the so-called homo oeconomicusthat is, maximizing (expected) utility of total wealth.In recent years, economics increasingly recognized that people often exhibit behavioral patterns which are incompatible with the idea of the homo oeconomicus. The field of behavioral economics incorporates insights from the field of psychology to explain discrepancies between predictions of traditional economic theory and actual observed behavior. In this paper, we summarize a selection of well-established behavioral patterns observed in reality and discuss their relevance for the insurance industry when it comes to better understanding and predicting customer behavior. We also explain that people are not always risk-averse and give a brief overview over Prospect Theory (probably the most popular behavioral economics alternative to Expected Utility Theory), its shortcomings for predicting behavior over a long time horizon, and its extensions. In total, we point out that, since dealing with risks and insurance products requires complex decision making processes, a deep understanding of the impacts of behavioral factors is essential to better assess and explain costumer behavior.This article is based on the book "Moderne Verhaltensökonomie in der Versicherungswirtschaft-Denkanstöße für ein besseres Verständnis der Kunden", Springer (2018) by the same authors. The authors gratefully acknowledge the support of Joëlle Näger who translated the first draft.

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“…Cf., also Bucher‐Koenen and Kluth () who find that people typically underestimate their own life expectancy by about 7 years.…”

mentioning

confidence: 86%

Insurance customer behavior: Lessons from behavioral economics

Richter¹,

Ruß²,

Schelling

2019

Risk Manage Insurance Review

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“…The differences in the anticipated life expectancy lead to various attitudes and behaviours of consumers in relation to the retirement financial security. If people subjectively expect that they will live longer than their objective life expectancy (estimated on the basis of statistical data on mortality in particular age groups), then, according to the life cycle hypothesis, they should limit their current consumption spending in favour of saving [49]- [50].…”

Section: Retirement Aspirationsmentioning

confidence: 99%

Consumers’ Attitudes towards Financially Securing Old Age

Olejnik¹,

Białowąs²

2016

IJTEF

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Abstract-The research problem of this article is identifying the attitudes of consumers towards having retirement financial security and the factors shaping these attitudes. Based on the review of the literature on the attitudes of consumers towards retirement financial security, several factors were identified, which may be deemed key elements in the model of attitudes. These include: consumers' belief in the need/sense of additional saving for old age, knowledge about retirement provisions, the perception of the bodies responsible for retirement provisions, intergenerational transfers within families and retirement aspirations.The primary data utilised in the study were obtained from representative quantitative studies. The representative quantitative survey was carried out, with a direct survey questionnaire, in 2014 (sample=1163). In the analysis, Exploratory Factor Analysis was used.The study revealed that the model of the attitudes of Poles towards retirement financial security includes all the aforementioned factors, except for the way of perceiving the bodies responsible for retirement provisions. The results of the study indicate that the constructs selected in the model of attitudes depend strongly on the self-assessment of health and on the age factor.Index Terms-Financial behaviour, old age financial security, attitudes towards finances.

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“…Aside from being well informed about the potential income from public, occupational, and private sources individuals have to form expectations about their planning horizon and adjust to increases in life expectancy. Bucher‐Koenen and Kluth () reveal that women and men underestimate their individual life expectancy substantially. Women on average expect to live about 7 and men about 6.5 years shorter compared to the (cohort‐adjusted) official life tables for Germany.…”

Section: Empirical Evidence From Germanymentioning

confidence: 99%

“…This might have substantial consequences for private savings, because individuals might not accumulate adequate reserves to finance the extra years they might live. Bucher‐Koenen and Kluth () find that women with higher subjective life expectancy are significantly more likely to own Riester pension contracts; no such selection effect is determined for men. Similarly, Doerr and Schulte () use SAVE data from 2005 to explore which role subjective life expectancy plays for the uptake of nonsubsidized private pensions.…”

Section: Empirical Evidence From Germanymentioning

confidence: 99%

Savings in Times of Demographic Change: Lessons From the German Experience

Börsch‐Supan

Bucher‒Koenen²,

Coppola³

et al. 2015

Journal of Economic Surveys

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Abstract. Pension reforms in many developed countries make individuals shoulder a bigger share of longevity and income risks. The desired response is that individuals accumulate private assets for retirement. Whether this actually takes place, is of paramount relevance for scientists and policy makers. We take Germany as an example: Twenty years of pension reform have transformed the monolithic German pension system into a multipillar system. Formerly generous public pension benefits are gradually being reduced, whereas substantial incentives are granted to occupational and private saving schemes. Has this transition worked out? We survey the reform steps and households' reactions: How did individuals adjust their labor market behavior? How did private and occupational pension plans take off? How do behavioral adjustments vary in the population? Most Germans adapted to the new situation. Both actual and expected retirement decisions changed and the share of households without supplementary pensions decreased from 73% to 39% in little more than a decade. This is a remarkable success. Nonetheless, households with low education, low income and less financial education did neither adjust their retirement behavior nor pick up supplementary pension plans and are thus likely to face difficulties in bridging the gap arising in future pension income.

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Subjective Life Expectancy and Private Pensions

Cited by 15 publications

References 32 publications

Insurance customer behavior: Lessons from behavioral economics

Insurance customer behavior: Lessons from behavioral economics

Consumers’ Attitudes towards Financially Securing Old Age

Savings in Times of Demographic Change: Lessons From the German Experience

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