How Much Does Annuity Demand React to a Large Price Change?

17 Pages Posted: 20 Jun 2013

See all articles by Monika Butler

Monika Butler

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

Stefan Staubli

University of Calgary

Maria Grazia Zito

University of St. Gallen

Date Written: July 2013

Abstract

In this paper, we present new evidence for the effect of changes in annuity prices on the decision to annuitize. We exploit an unprecedented change in policy in several Swiss occupational pension plans. There is an implied 8 percent reduction in the rate at which retirement capital is translated into an annuity, and this represents a net present value loss of CHF 18,500 (around US$ 20,000). To estimate the impact of this change, we use data from companies that changed their prices and from one large company that did not. We find that the price change reduces the propensity to annuitize among affected individuals by 16.8 percentage points.

Keywords: Annuity puzzle, occupational pension, policy change

JEL Classification: D91, G23, J26

Suggested Citation

Bütler, Monika and Staubli, Stefan and Zito, Maria Grazia, How Much Does Annuity Demand React to a Large Price Change? (July 2013). The Scandinavian Journal of Economics, Vol. 115, Issue 3, pp. 808-824, 2013, Available at SSRN: https://ssrn.com/abstract=2282342 or http://dx.doi.org/10.1111/sjoe.12022

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 Calgary ( email )

University Drive
Calgary, Alberta T2N 1N4
Canada

Maria Grazia Zito

University of St. Gallen ( email )

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

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