(UBS Paper 044) How Deep is the Annuity Market Participation Puzzle?
AbstractUsing U.K. microeconomic data, we analyze the empirical determinants of voluntary annuity market demand. We find that annuity market participation increases with financial wealth, life expectancy and education and decreases with other pension income and a possible bequest motive for surviving spouses. We then show that these empirically motivated determinants of annuity market participation have the same, quantitatively important, effects in a life cycle model of annuity demand, saving and portfolio choice. Moreover, reasonable preference parameters predict annuity demand levels comparable to the data, thereby questioning the conventional wisdom that limited annuity market participation is a puzzle to be explained.JEL Classification: E21, H00.Key Words: Annuities, portfolio choice, bequest motive.
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Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp593.
Date of creation: Jul 2007
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Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- H00 - Public Economics - - General - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-08 (All new papers)
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