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

Monika Bütler (), Kim Peijnenburg and Stefan Staubli

No 418, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

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.

Date: 2011
New Economics Papers: this item is included in nep-age and nep-cis
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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? (2013)
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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