How Much Do Means-Tested Benefits Reduce the Demand for Annuities?

Monika Bütler (), Kim Peijnenburg and Stefan Staubli

No 2013-11, NRN working papers from The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria

Abstract: We analyze the effect of means-tested benefits on annuitization decisions. Most industrialized countries provide a subsistence level consumption floor in old age, usually in the form of means-tested benefits. The availability of such means-tested payments creates an incentive to cash out (occupational) pension wealth for low and middle income earners, instead of taking the annuity. Agents trade-off the advantages from annuitization, receiving the wealth-enhancing mortality credit, to the disadvantages, giving up “free” wealth in the form of means-tested supplemental benefits. We find that the availability of means-tested benefits can reduce the desired annuitization levels substantially. Using individual level data, we show that the model’s predicted annuitization rates as a function of the level of pension wealth are roughly consistent with the cash-out patterns of occupational pension wealth observed in Switzerland.

Keywords: means-tested benefits; occupational pension; annuity; life-cycle model (search for similar items in EconPapers)
JEL-codes: D81 D91 G23 J26 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2013-12
New Economics Papers: this item is included in nep-age
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http://www.labornrn.at/wp/2013/wp1311.pdf (application/pdf)

Related works:
Journal Article: How much do means-tested benefits reduce the demand for annuities?* (2017)
Working Paper: How Much Do Means-Tested Benefits Reduce the Demand for Annuities? (2011)
Working Paper: How Much Do Means-Tested Benefits Reduce the Demand for Annuities? (2011)
Working Paper: How Much Do Means-Tested Benefits Reduce the Demand for Annuities? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:jku:nrnwps:2013_11

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