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The determinants of annuitization: evidence from Sweden

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  • Hagen, Johannes

    (Uppsala Center for Fiscal Studies)

Abstract

This paper uses unique micro data from a Swedish occupational pension plan to study the determinants of annuitization. The data is merged with national administrative data to create a large data set with rich individual background characteristics. The pension can either be withdrawn as a life annuity or during a fixed number of years with a minimum of five years. Low accumulation of assets is strongly associated with the choice of the 5-year payout. Consistent with the predictions of a life-cycle model, retirees who choose the 5-year payout are in worse health and exhibit higher ex-post mortality rates than annuitants. I also find that the parents of annuitants live longer than the parents of those who choose the 5- year payout. This suggests that individuals form expectations about how long they are likely to live based on the life-span patterns of their parents and take this into account when they decide whether to annuitize or not.

Suggested Citation

  • Hagen, Johannes, 2014. "The determinants of annuitization: evidence from Sweden," Working Paper Series, Center for Fiscal Studies 2014:13, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uufswp:2014_013
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    Cited by:

    1. Christian N. Brinch & Dennis Fredriksen & Ola L. Vestad, 2018. "Life Expectancy and Claiming Behavior in a Flexible Pension System," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(4), pages 979-1010, October.
    2. Johannes Hagen & Daniel Hallberg & Gabriella Sjögren, 2022. "A Nudge to Quit? The Effect of a Change in Pension Information on Annuitisation, Labour Supply and Retirement Choices Among Older Workers," The Economic Journal, Royal Economic Society, vol. 132(643), pages 1060-1094.
    3. Elinder, Mikael & Hagen, Johannes & Nordin, Mattias & Säve-Söderbergh, Jenny, 2020. "Who lacks pension knowledge, why and does it matter?," Working Paper Series 2020:24, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    4. Svetlana Pashchenko & Ponpoje Porapakkarm, 2019. "Accounting for Social Security Claiming Behavior," Working Papers 2019-068, Human Capital and Economic Opportunity Working Group.
    5. Lambregts, Timo R. & Schut, Frederik T., 2020. "Displaced, disliked and misunderstood: A systematic review of the reasons for low uptake of long-term care insurance and life annuities," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    6. Bütler, Monika & Ramsden, Alma, 2017. "How taxes impact the choice between an annuity and the lump sum at retirement," Economics Working Paper Series 1701, University of St. Gallen, School of Economics and Political Science.
    7. Maria Alexandrova & Nadine Gatzert, 2019. "What Do We Know About Annuitization Decisions?," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(1), pages 57-100, March.
    8. Bütler, Monika & Ramsden, Alma, 2016. "Pricing annuities: The role of taxation in retirement decisions," VfS Annual Conference 2016 (Augsburg): Demographic Change 145525, Verein für Socialpolitik / German Economic Association.
    9. Mohamad Hassan Abou Daya & Carole Bernard, 2022. "What matters in the annuitization decision?," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 158(1), pages 1-12, December.

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    More about this item

    Keywords

    Annuity puzzle; Longevity insurance; Occupational pension; Adverse selection;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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