Can the longevity risk alleviate The annuitization puzzle? Empirical evidence from Dutch data

Federica Teppa ()
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Federica Teppa: De Nederlandsche Bank (DNB) and Netspar

No 223, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: This paper provides new evidence on individual preferences over annuities and lump sum payments based on hypothetical questions posed in the DNB Household Survey in 2005. Contrary to the majority of papers in the annuitization puzzle literature, this study allows to control explicitly for the subjective survival probability (SSP), a key driver of the decision about whether to annuitize or not as a perceived measure of longevity risk. We find that people expecting to live longer do claim to prefer the annuity. This finding is very robust to controlling for bequest motives. The relevance of this paper is twofold. First, it delivers an important empirical result on the role of the SSP that is still not directly tested in the literature. Second and more important, combined with the empirical evidence that on average individuals tend to systematically underestimate their life expectancy, the findings have strong policy implications. The annuitization puzzle may be alleviated by helping individuals in better assessng their longevity risk, rather than forcing their actions.

Keywords: Longevity Risk; Annuitization Puzzle; Survey Data; Hypothetical Choices (search for similar items in EconPapers)
JEL-codes: C5 C8 D12 G11 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2011
New Economics Papers: this item is included in nep-age and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:inq:inqwps:ecineq2011-223

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