Pricing annuities: The role of taxation in retirement decisions

Monika Bütler () and Alma Ramsden

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: This paper investigates the role of taxation in individual annuitization decisions by exploiting differences in relative taxation between the one-off lump sum payment and the life-long annuity. In a first step taxes are imputed for both the lump sum and the annuity for each individual whose retirement choice is recorded in an administrative dataset from a large Swiss pension fund. Using a variety of measures of taxation we show that taxes can explain a significant part of the variation in annuity rates. Furthermore, exploiting kinks in the tax schedule within a regression discontinuity framework we find evidence for tax optimization strategies by individuals. The results of this paper suggest that individuals react strongly to tax incentives when making retirement choices.

JEL-codes: D91 H24 J26 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-age and nep-pbe
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145525

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