Can Mandatory Minimum Annuity Laws Have Unintended Consequences? - An Experimental Investigation

41 Pages Posted: 13 Feb 2018 Last revised: 12 May 2018

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: May 8, 2018

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or are considering implementing mandatory minimum annuity laws (e.g., Singapore and Israel), whereas others have repealed or are considering repealing such legislation (e.g., the U.K.).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 investigated the introduction and repeal of mandatory minimum annuity laws using a laboratory experiment and two surveys (of students and a representative sample of the age-relevant population). Demand for annuities (vs. a lump sum) was sensitive to the mandatory-minimum mechanism and consistent with anchoring to the signal reflected in the requirement. Our result indicates that imposing a mandatory minimum may have unintended consequences in the sense that does not guarantee an increase in the demand for annuities and may even reduce it. The outcome was 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 does not necessarily restore the demand for annuities to the level before implementation of the constraint.

Keywords: Mandatory Annuity, Anchoring, Household Finance

Suggested Citation

Hurwitz, Abigail and Sade, Orly and Winter, Eyal, Can Mandatory Minimum Annuity Laws Have Unintended Consequences? - An Experimental Investigation (May 8, 2018). 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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