Price Efficiency in the Dutch Annuity Market

28 Pages Posted: 25 May 2013

See all articles by E. S. Cannon

E. S. Cannon

University of Bristol - Department of Economics

Ralph Stevens

CPB Netherlands Bureau of Economic Policy Analysis; CEPAR

Ian Tonks

University of Bristol

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, Edmund Stuart 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

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

HOME PAGE: http://https://www.cpb.nl/medewerkers/ralph-stevens

CEPAR ( email )

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

Ian Tonks (Contact Author)

University of Bristol ( email )

Department of Finance and Accounting
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

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