Retirement Policy and Annuity Market Equilibria: Evidence from Chile

Gastón Illanes and Manisha Padi

No 26285, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Retirement policy has indirect effects on its beneficiaries, through the “crowd-out” or “crowd-in” of insurance markets. We study how retirement policy in Chile, which limits the drawdown of retirement assets but otherwise does not provide or require fixed income in retirement, results in more than 60% of eligible retirees purchasing private annuities at low prices. We estimate a demand model to show that replacing this voluntary policy with partial mandatory annuitization and removing limits on drawdowns causes the private annuity market to partially unravel. Under our model, this reform leads to a welfare increase equivalent to US$4,000 of additional pension savings on average, but welfare effects are heterogenous and many retirees would be harmed due to the higher prices of private annuities. Our results highlight the importance of considering the impact of policy reforms on the equilibria of related markets.

JEL-codes: D15 D82 G22 G28 H31 H44 (search for similar items in EconPapers)
Date: 2019-09
New Economics Papers: this item is included in nep-age and nep-ias
Note: AG IO
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Citations: View citations in EconPapers (3)

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