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How Deep is the Annuity Market Participation Puzzle?

Author

Listed:
  • 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.

Suggested Citation

  • Joachim Inkmann & Paula Lopes & Alexander Michaelides, 2009. "How Deep is the Annuity Market Participation Puzzle?," Working Papers 2009-5, Central Bank of Cyprus.
    • Handle: RePEc:cyb:wpaper:2009-5
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    File URL: http://www.centralbank.gov.cy/media/pdf/NPWPE_No5_102009_.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Annuities; portfolio choice; life insurance; bequest motive;

    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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