Framing and the Annuitization Decision: Experimental Evidence from a Dutch Pension Fund

33 Pages Posted: 7 Mar 2016

See all articles by Christian Bockweg

Christian Bockweg

Lucht Probst Associates GmbH

Eduard H.M. Ponds

Algemene Pensioen Groep (APG); Tilburg University - Department of Economics; Netspar; Tilburg University - Center for Economic Research (CentER)

Onno W. Steenbeek

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); APG All Pensions Group

Joyce Vonken

Algemene Pensioen Groep (APG)

Date Written: March 2, 2016

Abstract

We report the effects of framing and default settings in annuity demand after conducting a survey-based experiment with over 3,000 members of a Dutch occupational pension plan. The participants were asked to allocate their real projected pension accrual between a life annuity and a partial lump sum. In particular, we investigated the joint effects of consumption and investment frames and gain and loss frames. We present strong evidence for framing and default setting effects in annuity demand. We also find robust evidence of individual characteristics of influence annuity demand, highlighting the importance of heterogeneity among participants. Framing and default effects remain significant when we control for individual characteristics. We conclude Dutch plan members generally welcome the partial lump sum option over full annuitization. Framing and default settings are generally capable of predictively steering annuity demand. The precise effect framing may have also depends on the institutional environment, which predefines the perspective through which individuals filter annuities.

Keywords: Annuity puzzle, framing, pension annuities, lump sum

JEL Classification: G02, G11, H55

Suggested Citation

Bockweg, Christian and Ponds, Eduard H.M. and Steenbeek, Onno W. and Vonken, Joyce, Framing and the Annuitization Decision: Experimental Evidence from a Dutch Pension Fund (March 2, 2016). Netspar Discussion Paper No. 03/2016-007, Available at SSRN: https://ssrn.com/abstract=2742106 or http://dx.doi.org/10.2139/ssrn.2742106

Christian Bockweg

Lucht Probst Associates GmbH ( email )

Grosse Gallusstr. 9
Frankfurt, 60311
Germany

Eduard H.M. Ponds (Contact Author)

Algemene Pensioen Groep (APG) ( email )

P.O. Box 75283
Amsterdam, 1070 AG
Netherlands

Tilburg University - Department of Economics

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - Center for Economic Research (CentER) ( email )

Tilburg

Onno W. Steenbeek

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

Dept. of Finance, H14-1
P.O. Box 1738
3000 DR Rotterdam, 3000DR
Netherlands
+31-10-4081400 (Phone)
+31-10-4089165 (Fax)

HOME PAGE: http://people.few.eur.nl/steenbeek/

APG All Pensions Group ( email )

Gustav Mahlerplein 3
P.O. Box 75283
1070 AG Amsterdam
Netherlands
+31-20-6049122 (Phone)
+31-20-4059176 (Fax)

HOME PAGE: http://www.apg.nl

Joyce Vonken

Algemene Pensioen Groep (APG) ( email )

P.O. Box 75283
Amsterdam, 1070 AG
Netherlands

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