Lifetime Annuity – Insurance or Risky Investment?

Radosław Kurach, Beata Zmyślona, Marek Kośny and Paweł Kuśmierczyk

Review of Behavioral Economics, 2025, vol. 12, issue 1, 17-37

Abstract: The roots of the annuity puzzle, recognized as an unexpectedly low demand for lifetime annuities compared to theoretical predictions, are the subject of an ongoing research debate. In this study, we present empirical evidence that may cast new light on this issue. Utilizing data from a nationwide survey combined with a non-incentivized experiment on pension attitudes, we investigate the dual nature of individuals’ risk perception associated with lifetime annuity products. A wide range of control variables is employed to ensure the robustness of the results. We find a significant relationship between the demand for lifetime annuities and one’s relative risk attitude in two areas. Consequently, lifetime annuity buyers are likely to be risk-averse but, at the same time, risk-tolerant when it comes to financial matters. We argue that individuals view lifetime annuities not just as a hedge against longevity risk but also as an investment vehicle with uncertain future payouts.

Date: 2025
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