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

  • Bütler, Monika
  • Teppa, Federica

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 Small levels of accumulated pension capital are much more likely to be withdrawn as a lump sum, suggesting a potential moral hazard behaviour or a magnitude effect.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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5316.

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Date of creation: Oct 2005
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Handle: RePEc:cpr:ceprdp:5316
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  1. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
  2. Hurd, M., 1999. "Anchoring and Acquiescence Bias in Measuring Assets in Households Surveys," Papers 99-02, RAND - Labor and Population Program.
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  8. 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.
  9. Gourinchas, Pierre-Olivier & Parker, Jonathan A, 2001. "The Empirical Importance of Precautionary Saving," CEPR Discussion Papers 2737, C.E.P.R. Discussion Papers.
  10. Deaton, A., 1989. "Saving And Liquidity Constraints," Papers 153, Princeton, Woodrow Wilson School - Public and International Affairs.
  11. Estelle James & Xue Song, 2001. "Annuities Markets Around the World: Money’s Worth and Risk Intermediation," CeRP Working Papers 16, Center for Research on Pensions and Welfare Policies, Turin (Italy).
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  14. Queisser, Monika & Vittas, Dimitri, 2000. "The Swiss multi-pillar pension system : triumph of common sense?," Policy Research Working Paper Series 2416, The World Bank.
  15. Butler, Monika & Ruesch, Martin, 2007. "Annuities in Switzerland," Policy Research Working Paper Series 4438, The World Bank.
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