Supply Side Resistance to Lifetime Annuities

18 Pages Posted: 14 Dec 2021

See all articles by Anthony Asher

Anthony Asher

University of New South Wales (UNSW) - School of Actuarial Studies

Date Written: November 22, 2021

Abstract

The Annuity Puzzle is that lifetime annuities are not utilized in retirement as often as might be expected. The literature invariably provides demand side explanations: bequest motives, liquidity preferences, crowding out by social security and family insurance, unattractive investment returns, poor money’s worth particularly for those with lower life expectancies and solvency concerns. On closer examination, none of these are found to adequately explain the puzzle, so the accepted view has come to be that a considerable proportion is due to behavioural biases and misunderstandings.

Overcoming behavioural biases and misunderstandings is likely to require a significant advances in the provision of financial advice. The tension between ensuring that advice is both appropriate and affordable is widely recognised, with the current focus in Australia being on simplification and financial technology.

On the other hand, supply side limitations to alternative products have barely been explored; particularly the possibility that it too is due to behavioural biases and misunderstandings. There is evidence of general resistance to change that could be explained by the interests of trustees and advisors to increase the size of their funds under management, and fees. The paper concludes by identifying challenges to trustees, advisors, regulators and academics.

Keywords: Behavioural biases; misunderstanding; regulatory capture; perverse incentives

JEL Classification: G22, G28, G41

Suggested Citation

Asher, Anthony, Supply Side Resistance to Lifetime Annuities (November 22, 2021). Available at SSRN: https://ssrn.com/abstract=3981196 or http://dx.doi.org/10.2139/ssrn.3981196

Anthony Asher (Contact Author)

University of New South Wales (UNSW) - School of Actuarial Studies ( email )

Sydney, NSW 2052
Australia
612 9385 7619 (Phone)

HOME PAGE: http://www.asb.unsw.edu.au/schools/Pages/AnthonyAsher.aspx

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