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How people evaluate defined contribution, annuity-based pension arrangements: A behavioral exploration

  • Duxbury, Darren
  • Summers, Barbara
  • Hudson, Robert
  • Keasey, Kevin

The shift from defined benefit (DB) to defined contribution (DC) private pension arrangements coupled with the widespread reluctance to annuitize retirement savings is causing growing economic concern in developed countries. This study considers the impact of the salient decision point made explicit in DC schemes, but masked in DB schemes; namely, the exchange of accumulated savings at retirement for a future income stream. We investigate issues affecting the evaluation of a potential annuity purchase at an aggregate level (whether the purchase provides value for money), at a disaggregate level (whether the income stream is adequate in meeting expected needs) and in terms of preferred patterns of future income stream. Our results indicate that annuities do not evaluate well on these criteria, but we provide insight for policy makers, product developers and financial advisors into the issues affecting such evaluations, and into the sort of changes that might make annuitization more attractive.

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Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 34 (2013)
Issue (Month): C ()
Pages: 256-269

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Handle: RePEc:eee:joepsy:v:34:y:2013:i:c:p:256-269
Contact details of provider: Web page: http://www.elsevier.com/locate/joep

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