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Should You Take a Lump-Sum or Annuitize? Results from Swiss Pension Funds

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Author Info
Monika Bütler ()
Federica Teppa

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Abstract

We use a unique dataset on individual retirement decisions in Swiss pension funds to analyze the choice between an annuity and a lump sum at retirement. Our analysis suggests the existence of an "acquiescence bias", meaning that a majority of retirees chooses the standard option offered by the pensions fund or suggested by common practice. Small levels of accumulated pension capital are much more likely to be withdrawn as a lump sum, suggesting a potential moral hazard behavior or a magnitude effect. We hardly find evidence for adverse selection effects in the data. Single men, for example, whose money's worth of an annuity is considerably below the corresponding value of married men, are not more likely to choose the capital option.

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File URL: http://www.vwa.unisg.ch/RePEc/usg/dp2005/DP-20_Bu.pdf
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Publisher Info
Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2005 with number 2005-20.

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Length: 36 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:usg:dp2005:2005-20

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
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

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Butler, Monika & Ruesch, Martin, 2007. "Annuities in Switzerland," Policy Research Working Paper Series 4438, The World Bank. [Downloadable!]
  2. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207. [Downloadable!] (restricted)
  3. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2001. "The Empirical Importance of Precautionary Saving," American Economic Review, American Economic Association, vol. 91(2), pages 406-412, May. [Downloadable!] (restricted)
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  4. Jeffrey R. Brown, 2003. "Redistribution and Insurance: Mandatory Annuitization With Mortality Heterogeneity," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(1), pages 17-41. [Downloadable!] (restricted)
    Other versions:
  5. Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, vol. 97(387), pages 666-84, September. [Downloadable!] (restricted)
  6. John T. Warner & Saul Pleeter, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March. [Downloadable!] (restricted)
  7. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October. [Downloadable!] (restricted)
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  8. Hurd, Michael D, 1999. "Anchoring and Acquiescence Bias in Measuring Assets in Household Surveys," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 111-36, December. [Downloadable!] (restricted)
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  9. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September. [Downloadable!] (restricted)
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  10. Queisser, Monika & Vittas, Dimitri, 2000. "The Swiss multi-pillar pension system : triumph of common sense?," Policy Research Working Paper Series 2416, The World Bank. [Downloadable!]
  11. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September. [Downloadable!] (restricted)
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  12. Daniel S. Hamermesh, 1985. "Expectations, Life Expectancy, and Economic Behavior," NBER Working Papers 0835, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Thomas Davidoff & Jeffrey R. Brown & Peter A. Diamond, 2005. "Annuities and Individual Welfare," American Economic Review, American Economic Association, vol. 95(5), pages 1573-1590, December. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Butler, Monika & Ruesch, Martin, 2007. "Annuities in Switzerland," Policy Research Working Paper Series 4438, The World Bank. [Downloadable!]
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