Preferences for Deferred Annuities in the Japanese Retirement Market

Journal of Financial Economic Policy, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFEP-06-2020-0138

Posted: 15 Jun 2021

See all articles by Tomoki Kitamura

Tomoki Kitamura

Tohoku Gakuin University; NLI Research Institute, Finance Research Group

Kunio Nakashima

NLI Research Institute; Toyo University

Date Written: June 15, 2021

Abstract

Purpose
Deferred annuities, which offer longevity insurance with relatively low premiums, are a potential payout option in defined contribution (DC) pension plans in Japan. This study aims to measure individual preferences for these annuities.

Design/methodology/approach
This study conducts stated choice experiments using an original internet survey. This methodology provides a decision-making scenario similar to that faced by individuals when making real retirement saving decisions. Subjective valuations of deferred, immediate and term annuities are compared.

Findings
This study finds that male individuals have an insignificant preference for deferred annuities – the benefits of which begin at an advanced age. On average, deferred annuities are considered a gamble, betting against life and individuals who are married and have higher financial assets tend to value them less.

Originality/value
While previous studies, based on theory and simulations, have found that deferred annuities should be included in individual retirement assets, this study examines annuity preferences from the demand side (i.e. DC plan participants) –an approach that has not been addressed in the literature.

Keywords: Deferred annuity, Retirement market in Japan, Stated choice experiment, Subjective valuation, Insurance, Behavioral economics

JEL Classification: G52, G22, D14

Suggested Citation

Kitamura, Tomoki and Nakashima, Kunio, Preferences for Deferred Annuities in the Japanese Retirement Market (June 15, 2021). Journal of Financial Economic Policy, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFEP-06-2020-0138 , Available at SSRN: https://ssrn.com/abstract=3865708

Tomoki Kitamura (Contact Author)

Tohoku Gakuin University ( email )

1-3-1 Tsuchitoi Aoba-ku
Sendai, 980-8511
Japan

NLI Research Institute, Finance Research Group ( email )

4-1-7, Kudankita
Chiyoda-ku
Tokyo, 102-0073
Japan
+81-3-3512-1854 (Phone)
+81-3-5211-1082 (Fax)

HOME PAGE: http://www.nli-research.co.jp

Kunio Nakashima

NLI Research Institute ( email )

4-1-7, Kudankita
Chiyoda-ku
Tokyo, 102-0073
Japan
+81-3-3512-1859 (Phone)
+81-3-5211-1082 (Fax)

Toyo University ( email )

5-28-20 Hakusan
Bunkyo-ku
Tokyo 112-8606
Japan

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