How taxes impact the choice between an annuity and the lump sum at retirement

Monika Bütler () and Alma Ramsden ()

No 1701, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: We analyze the role of taxation in individual annuitization decisions in an environment that shows large di?erences in relative taxation between the one-o? lump sum payment and the life-long annuity. For each individual whose retirement choice is recorded in an administrative dataset from a large Swiss pension fund we impute taxes for both options. We show that taxes can explain a signi?cant part of the variation in annuity rates. Exploiting kinks in the tax schedule we also ?nd evidence for tax optimization strategies by individuals. Our ?ndings suggest that individuals react strongly to tax incentives when making retirement choices.

Keywords: Annuity Puzzle; Taxation; Occupational Pension (search for similar items in EconPapers)
JEL-codes: D81 D91 H24 J26 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2017-01
New Economics Papers: this item is included in nep-age, nep-pbe and nep-pub
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2017:01

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