The implication of the hyperbolic discount model for the annuitisation decisions

Anran Chen, Steven Haberman and Stephen Thomas

Journal of Pension Economics and Finance, 2020, vol. 19, issue 3, 372-391

Abstract: The low demand for immediate annuities at retirement has been a long-standing puzzle. We show that a hyperbolic discount model can explain this behaviour and results in the attractiveness of long-term deferred annuities. With a set of benchmark assumptions, we find that retirees would be willing to pay a much higher price than the actuarial fair price for annuities with longer deferred periods. Moreover, if governments were to introduce a pre-commitment device which requires pensioners to make annuitisation decisions around 10 years before retirement, the take up rate of annuities could become higher.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jpenef:v:19:y:2020:i:3:p:372-391_6

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