Assessing the Demand for Annuities in an Undeveloped Market: Evidence from Hong Kong

38 Pages Posted: 20 Jul 2016

See all articles by Kee-Lee Chou

Kee-Lee Chou

The Hong Kong Institute of Education - Department of Asian and Policy Studies

Joachim Inkmann

University of Melbourne - Department of Finance; Financial Research Network (FIRN)

Hans van Kippersluis

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

Wai Sum Chan

The Chinese University of Hong Kong (CUHK) - Department of Finance

Date Written: July 8, 2016

Abstract

How to design an attractive annuity for an undeveloped market and how to assess the potential demand for such a product? We first conduct a discrete choice experiment among participants of a large-scale occupational defined contribution pension scheme in Hong Kong to identify desired product characteristics of an annuity. The preferred annuity is sold by an A-rated insurance company, provides nominal annuity payouts and a 10-year period-certain guarantee. Using a second survey, we then analyze the demand for the preferred annuity. Close to one third of respondents chooses to annuitize, a fraction that considerably exceeds observed annuitization rates in developed markets. Regarding household characteristics, we find that annuity demand decreases with general financial literacy but increases with specific knowledge about the annuity product. Remarkably, a self-reported bequest motive increases the demand for an annuity providing a 10-year period-certain guarantee.

Keywords: Annuity, Pension, Demand, Undeveloped Market, Hong Kong

JEL Classification: D14, G11, G22, J14, J32

Suggested Citation

Chou, Kee-Lee and Inkmann, Joachim and van Kippersluis, Hans and Chan, Wai-Sum, Assessing the Demand for Annuities in an Undeveloped Market: Evidence from Hong Kong (July 8, 2016). Netspar Discussion Paper No. 07/2016-023. Available at SSRN: https://ssrn.com/abstract=2811610 or http://dx.doi.org/10.2139/ssrn.2811610

Kee-Lee Chou

The Hong Kong Institute of Education - Department of Asian and Policy Studies ( email )

Department of Asian and Policy Studies, The Hong K
Tai Po, New Territories
Hong Kong

Joachim Inkmann (Contact Author)

University of Melbourne - Department of Finance ( email )

Level 12, 198 Berkeley Street
University of Melbourne, Victoria 3010
Australia
0061 3 9035 8177 (Phone)

HOME PAGE: http://orcid.org/0000-0002-5526-7648

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Hans Van Kippersluis

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

Burg. Oudlaan 50
Rotterdam, NL 3062 PA
Netherlands

Wai-Sum Chan

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong

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