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How deep is the annuity market participation puzzle?

  • Paula Lopes

    (Universidade Catolica Portuguesa)

  • Alex Michaelides

    (LSE)

  • Joachim Inkmann

    (Tilburg)

Using U.K. 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 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: https://www.economicdynamics.org/meetpapers/2009/paper_239.pdf
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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 239.

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Date of creation: 2009
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Handle: RePEc:red:sed009:239
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