Annuity vs. Lump Sum - A megastudy on occupational pension uptake decisions

Mathias Celis (), Kris Boudt, Mona Bassleer, Wouter Duyck, Stijn Schelfhout and Nicolas Dirix
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Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: In an online vignette study involving 15,593 participants, we investigated the effectiveness of various nudging interventions, including defaults, pre-commitment strategies, evaluative labels, social norms, and their combinations, on annuity uptake decisions within the occupational pension scheme. Participants decided how to allocate their pension funds between a lump sum and an annuity using a continuous decision slider, offering a more flexible alternative to traditional binary choices. Our findings revealed a small but statistically significant effect of pre-commitment strategies on annuitization. However, contrary to expectations, all other interventions (defaults, social norms, evaluative labels, and their combinations) showed no significant effect on annuity uptake. Notably, we observed a consistent decision pattern across all conditions. On average, across all conditions, 51.2% of participants opted for less than 5% annuity uptake, 34.5% chose a mix, with a significant peak of 13% at exactly 50% annuity uptake, and 14.3% selected more than 95% annuity. This clustering around round numbers suggests a "round number bias" influenced by the 0–100% continuous scale used, where participants gravitated towards cognitively straightforward, salient options. These findings align with recent debates questioning the general effectiveness of nudging interventions, particularly in complex financial decisions, often involving deeply rooted preferences. The present study highlights the limitations of nudges in shifting behavior as our study also underscores the need for a better understanding of the driving forces behind annuity uptake rationales to effectively influence annuity uptake decisions.

Pages: 49 pages
Date: 2026-02
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