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

Monika Bütler (), Kim Peijnenburg and Stefan Staubli

No 1124, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

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 or income supplements. The availability of such meanstested 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 show that the availability of means-tested benefits can reduce the desired annuitization levels substantially. Moreover, 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.

Keywords: Means-Tested Benefits; Occupational Pension; Annuity. (search for similar items in EconPapers)
JEL-codes: D81 D91 G23 J26 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2011-06
New Economics Papers: this item is included in nep-age
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Citations: View citations in EconPapers (9)

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http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1124.pdf (application/pdf)

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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Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2011:24

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