How Deep is the Annuity Market Participation Puzzle?

45 Pages Posted: 3 Mar 2008

See all articles by Paula Lopes

Paula Lopes

Financial Markets Group, LSE

Alexander Michaelides

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Joachim Inkmann

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Multiple version iconThere are 3 versions of this paper

Date Written: January 11, 2008

Abstract

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, thereby questioning the conventional wisdom that limited annuity market participation is a puzzle to be explained.

Keywords: Annuities, portfolio choice, bequest motive

JEL Classification: E21, H00

Suggested Citation

Lopes, Paula and Michaelides, Alexander and Inkmann, Joachim, How Deep is the Annuity Market Participation Puzzle? (January 11, 2008). EFA 2008 Athens Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1099911 or http://dx.doi.org/10.2139/ssrn.1099911

Paula Lopes

Financial Markets Group, LSE ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Alexander Michaelides

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Joachim Inkmann (Contact Author)

University of Melbourne - Department of Finance ( email )

Level 12, 198 Berkeley Street
University of Melbourne, Victoria 3010
Australia
0061 3 9035 8177 (Phone)

HOME PAGE: http://orcid.org/0000-0002-5526-7648

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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