The Role of the Annuity's Value on the Decision (Not) to Annuitize: Evidence from a Large Policy Change

43 Pages Posted: 27 Aug 2008

See all articles by Monika Butler

Monika Butler

University of St. Gallen; CESifo (Center for Economic Studies and Ifo Institute)

Stefan Staubli

University of Zurich; RAND Corporation - Labor and Population; Netspar

Maria Grazia Zito

University of St. Gallen

Multiple version iconThere are 2 versions of this paper

Date Written: August 2008

Abstract

This paper presents new evidence on how the annuitization decision is affected by changes in the annuity's value. We take advantage of an unprecendented change in policy, which in 2004 moderated the super-mandatory Swiss occupational pension scheme: The 20 percent reduction in the rate at which retirement capital is translated into a life-long annuity equates to a net present value loss of approximately 20,000 SFR (20,000 US$) for the average retiree. Using administrative data and correcting for anticipation effects, we show that due to the change in policy there was an approximately 8 percentage point change in the share of men choosing to annuitize their savings. We also show that the estimated responsiveness of the cash-out decision to variations in a utility based measure for the annuity value is comparable to results of previous studies, which employed completely different sources of variation in the annuity's value.

Keywords: annuity puzzle, occupational pension, policy change

JEL Classification: D91, H55, J26

Suggested Citation

Bütler, Monika and Staubli, Stefan and Zito, Maria Grazia, The Role of the Annuity's Value on the Decision (Not) to Annuitize: Evidence from a Large Policy Change (August 2008). CESifo Working Paper Series No. 2376. Available at SSRN: https://ssrn.com/abstract=1259648

Monika Bütler (Contact Author)

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Stefan Staubli

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

RAND Corporation - Labor and Population ( email )

United States

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Maria Grazia Zito

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

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