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How Deep is the Annuity Market Participation Puzzle?

Author Info

  • Joachim Inkmann

    ()

    (The University of Melbourne and Netspar)

  • Paula Lopes

    ()

    (London School of Economics, FMG and Netspar)

  • Alexander Michaelides

    ()

    (Central Bank of Cyprus, London School of Economics, CEPR, FMG, and Netspar)

Abstract

Using UK microeconomic data, we analyze the empirical determinants of voluntary annuity market demand. We find that annuity market participation increases with financial wealth, life expectancy and education and decreases with other pension income and a possible bequest motive for surviving spouses. We then show that these empirically-motivated determinants of annuity market participation have the same, quantitatively important, effects in a life-cycle model of annuity and life insurance demand, saving and portfolio choice. Moreover, reasonable preference parameters predict annuity demand levels comparable to the data. For stockholders, a relatively strong bequest motive is sufficient to simultaneously generate balanced portfolios and low annuity demand.

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File URL: http://www.centralbank.gov.cy/media/pdf/NPWPE_No5_102009_.pdf
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Paper provided by Central Bank of Cyprus in its series Working Papers with number 2009-5.

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Length: 59 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:cyb:wpaper:2009-5
Contact details of provider: Web page: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=1
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Keywords: Annuities; portfolio choice; life insurance; bequest motive;

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Find related papers by JEL classification:
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
  • H00 - Public Economics - - General - - - General

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