Subjective Life Expectancy and Private Pensions

Posted: 24 May 2013

See all articles by Tabea Bucher-Koenen

Tabea Bucher-Koenen

ZEW – Leibniz Centre for European Economic Research; Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA)

Sebastian Kluth

Max Planck Institute for Social Law and Social Policy

Date Written: May 22, 2012

Abstract

One important parameter in the decision process when buying a private annuity is individuals´ subjective life expectancy, because it directly influences the expected rate of return. We examine the market for private annuities in Germany and evaluate potential selection effects based on subjective life expectancy. First individuals are pessimistic about their life span compared to the official life tables. Second we find a significant selection effect based on subjective life expectancy for women who invest in private annuity contracts - so called Riester pensions. For men there seems to be no difference in subjective life expectancy by Riester ownership. Comparing the size of this selection effect with the underlying loading in life expectancy charged by the insurance industry shows that the latter appears to be in line for women but very high for men. Our findings have strong policy implications. On the one hand misperceptions about longevity risk might prevent individuals from providing sufficiently for retirement. On the other hand mandated unisex tariffs might especially discourade men from investing in Riester pensions, for them premiums in life expectancy are particularly high compared to subjective expectations.

Keywords: Riester pensions, annuities, adverse selsction, life-cycle saving

JEL Classification: D12, D91, G11

Suggested Citation

Bucher-Koenen, Tabea and Bucher-Koenen, Tabea and Kluth, Sebastian, Subjective Life Expectancy and Private Pensions (May 22, 2012). MEA Discussion Paper No. 265-12, Available at SSRN: https://ssrn.com/abstract=2269000 or http://dx.doi.org/10.2139/ssrn.2269000

Tabea Bucher-Koenen (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

HOME PAGE: http://mea.mpisoc.mpg.de/

Sebastian Kluth

Max Planck Institute for Social Law and Social Policy ( email )

Amalienstraße 33
München, 80799
Germany

HOME PAGE: http://mea.mpisoc.mpg.de/

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