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The Design of Pension Pay Out Options when the Health Status during Retirement is Uncertain

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  • Mathias Kifmann

Abstract

This paper examines the optimal design of pension plans when the health status during retirement is uncertain. Assuming that the health status affects both life expectancy and the marginal utility of consumption, choice between a lump-sum payment and an annuity can be welfare-enhancing if the health status is not observable by pension plans. This result holds if the marginal utility of consumption and life expectancy are negatively correlated. On equity grounds, a lump-sum option can be justified even if the marginal utility of consumption is independent of life expectancy.

Suggested Citation

  • Mathias Kifmann, 2008. "The Design of Pension Pay Out Options when the Health Status during Retirement is Uncertain," CESifo Working Paper Series 2211, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2211
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    References listed on IDEAS

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    1. Kotlikoff, Laurence J & Spivak, Avia, 1981. "The Family as an Incomplete Annuities Market," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 372-391, April.
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    Cited by:

    1. Steinorth, Petra, 2012. "The demand for enhanced annuities," Journal of Public Economics, Elsevier, vol. 96(11), pages 973-980.
    2. Mathias Kifmann, 2010. "The Design of Pension Pay Out Options When the Health Status during Retirement Is Uncertain," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 127-149, February.
    3. Schuhmacher, Petra, 2008. "The Demand for Enhanced Annuities," Discussion Papers in Business Administration 7954, University of Munich, Munich School of Management.

    More about this item

    Keywords

    pensions; lump-sum withdrawal; annuities; longevity;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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