Price Efficiency in the Dutch Annuity Market

28 Pages Posted: 25 May 2013  

E. S. Cannon

University of Bristol - Department of Economics

Ralph Stevens

University of New South Wales (UNSW) - School of Actuarial Studies

Ian Tonks

University of Bath School of Management

Date Written: April 1, 2013

Abstract

We provide the first analysis of annuity rates in the Netherlands for the period 2001-2012. During this period, the number of annuity providers was high and stable and we find that falls in annuity rates can be explained entirely by changes in yields and life expectancy. We show that annuitants could have increased their annuity income by about 5%, by shopping around and purchasing their annuities from alternative providers. Money’s worth calculations show that the market is efficient by international standards, with a money’s worth above 0.9 for the whole period and close to unity by the end of the period. We present conflicting evidence on the existence of adverse selection because although we find money’s worths are inversely related to age of purchase, we find they are positively related to size of purchase.

Suggested Citation

Cannon, E. S. and Stevens, Ralph and Tonks, Ian, Price Efficiency in the Dutch Annuity Market (April 1, 2013). Netspar Discussion Paper No. 04/2013-016. Available at SSRN: https://ssrn.com/abstract=2269556 or http://dx.doi.org/10.2139/ssrn.2269556

Edmund Stuart Cannon

University of Bristol - Department of Economics ( email )

Senate House
Tyndall Avenue
Bristol BS8 ITH
United Kingdom

Ralph Stevens

University of New South Wales (UNSW) - School of Actuarial Studies ( email )

Sydney, NSW 2052
Australia
+61 2 9385 2566 (Phone)
+61 2 9385 1883 (Fax)

HOME PAGE: http://www.asb.unsw.edu.au/schools/Pages/RalphStevens.aspx

Ian Tonks (Contact Author)

University of Bath School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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