Unintended Consequences of Minimum Annuity Laws: An Experimental Study

40 Pages Posted: 13 Feb 2018 Last revised: 22 Feb 2019

See all articles by Abigail Hurwitz

Abigail Hurwitz

Hebrew University, Jerusalem Israel; College of Management (Israel) - Academic Studies (COMAS)

Orly Sade

Hebrew University of Jerusalem - Department of Finance

Eyal Winter

Hebrew University of Jerusalem - Department of Economics

Date Written: Jan 8, 2019

Abstract

The need to ensure that people have adequate savings for retirement has prompted debate among regulators and academics. Certain countries have implemented or are considering implementing mandatory minimum annuity laws (e.g., Singapore and Israel), whereas others have repealed or are considering repealing such legislation (e.g., the U.K.). We investigate the introduction as well as the repeal of a regulatory change; “mandatory minimum annuity rules” using a laboratory experiment and two surveys. Demand for annuities vs. a lump sum is sensitive to the mandatory-minimum mechanism and consistent with anchoring to the signal reflected in the requirement. Our results indicate that imposing a mandatory minimum may have unintended consequences: such laws may fail to provide an increase in the demand for annuities and may even reduce it. The outcome is sensitive to the relation between the level of the mandatory minimum and anticipated consumption (i.e., future financial need). Furthermore, the repeal of mandatory minimum annuity laws may not restore the demand for annuities to the pre-law level.

Keywords: Mandatory Annuity, Anchoring, Household Finance

Suggested Citation

Hurwitz, Abigail and Sade, Orly and Winter, Eyal, Unintended Consequences of Minimum Annuity Laws: An Experimental Study (Jan 8, 2019). Available at SSRN: https://ssrn.com/abstract=3117804 or http://dx.doi.org/10.2139/ssrn.3117804

Abigail Hurwitz

Hebrew University, Jerusalem Israel ( email )

Mount Scopus
Jerusalem, 91905
Israel

College of Management (Israel) - Academic Studies (COMAS) ( email )

Israel

Orly Sade (Contact Author)

Hebrew University of Jerusalem - Department of Finance ( email )

Mount Scopus
Jerusalem, 91905
Israel
972 2 588 3227 (Phone)

Eyal Winter

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel

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