Hostname: page-component-77c78cf97d-lmk9j Total loading time: 0 Render date: 2026-04-24T01:35:07.607Z Has data issue: false hasContentIssue false
  • English
  • Français

Welfare implications of product choice regulation during the payout phase of funded pensions

Published online by Cambridge University Press:  13 December 2013

VANYA HORNEFF ,
BARBARA KASCHÜTZKE ,
RAIMOND MAURER  and
RALPH ROGALLA
VANYA HORNEFF
Affiliation:
Department of Finance, Goethe University Frankfurt, Grüneburgplatz 1 (Uni-PF H 23), 60323 Frankfurt am Main, Germany (e-mail: vhorneff@finance.uni-frankfurt.de, kaschuetzke@finance.uni-frankfurt.de, maurer@finance.uni-frankfurt.de, rogalla@finance.uni-frankfurt.de)
BARBARA KASCHÜTZKE
Affiliation:
Department of Finance, Goethe University Frankfurt, Grüneburgplatz 1 (Uni-PF H 23), 60323 Frankfurt am Main, Germany (e-mail: vhorneff@finance.uni-frankfurt.de, kaschuetzke@finance.uni-frankfurt.de, maurer@finance.uni-frankfurt.de, rogalla@finance.uni-frankfurt.de)
RAIMOND MAURER
Affiliation:
Department of Finance, Goethe University Frankfurt, Grüneburgplatz 1 (Uni-PF H 23), 60323 Frankfurt am Main, Germany (e-mail: vhorneff@finance.uni-frankfurt.de, kaschuetzke@finance.uni-frankfurt.de, maurer@finance.uni-frankfurt.de, rogalla@finance.uni-frankfurt.de)
RALPH ROGALLA
Affiliation:
Department of Finance, Goethe University Frankfurt, Grüneburgplatz 1 (Uni-PF H 23), 60323 Frankfurt am Main, Germany (e-mail: vhorneff@finance.uni-frankfurt.de, kaschuetzke@finance.uni-frankfurt.de, maurer@finance.uni-frankfurt.de, rogalla@finance.uni-frankfurt.de)
Get access Rights & Permissions [Opens in a new window]

Abstract

In many countries, governmental support for funded old-age programmes comes at the cost of at least partial mandatory annuitisation of accumulated assets in retirement. We survey regulatory frameworks for the payout phase of funded pension systems in seven European countries and the US and study the influence of mandatory annuitisation on the welfare of both rational and behaviourally influenced individuals using a dynamic life-cycle model. We show that mandatory immediate full annuitisation of retirement assets will reduce rational individuals’ certainty equivalent pension wealth by up to 54%. Softening the strict immediate annuitisation requirements along the line of regulatory realities in some of the surveyed countries reduces utility losses considerably. Behaviourally restricted individuals can benefit from full annuitisation at retirement, but generally they will also prefer more flexible regulation.

Keywords

G11G28H24H55Pension regulationannuitisationcross-country surveyportfolio choice

Information

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 13 , Issue 3 , July 2014 , pp. 272 - 296
Copyright
Copyright © Cambridge University Press 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

AFG (Association Française de la Gestion Financière) (2012) Communiqué de presse: Les PERCO ont poursuivi leur progression en 2012. Available online at http://www.afg.asso.fr/index.php?option=com_content&view=article&id=4845%3Ales-perco-ont-poursuivi-leur-progression-en-2012&catid=516%3A2013&lang=enhttp://www.afg.asso.fr/index.php?searchword=PERCO&ordering=&searchphrase=all&Itemid=368&option=com_search&lang=en, accessed in July 2013.Google Scholar
Agnew, J. R., Anderson, L. R., Gerlach, J. R. and Szykman, L. R. (2008) Who chooses annuities? An experimental investigation of the role of gender, framing, and defaults. American Economic Review, 98(2): 418–422.CrossRefGoogle Scholar
Ameriks, J., Caplin, A., Laufer, S. and Van Nieuwerburgh, S. (2011) The joy of giving or assisted living? Using strategic surveys to separate bequest and precautionary motives. Journal of Finance, 66(2): 519–561.CrossRefGoogle Scholar
BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht) (2011) Jahresbericht 2011, Statistischer Teil. Table 700. Available online at http://www.bafin.de/SharedDocs/Standardartikel/DE/st_va_erstvu.html, accessed in July 2013.Google Scholar
BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht) (2012) Jahresbericht 2012, p. 97. Table 6. Available online at http://www.bafin.de/SharedDocs/Downloads/DE/Jahresbericht/dl_jb_2012.html, accessed in July 2013.Google Scholar
Bateman, H. and Thorp, S. (2008) Choices and constraints over retirement income streams: comparing rules and regulations. Economic Record, 84 (Special Issue September): 17–31.Google Scholar
Behaghel, L. and Blau, D. M. (2012) Framing social security reform: behavioral responses to changes in the full retirement age. American Economic Journal: Economic Policy, 4(4): 41–67.Google Scholar
Benartzi, S., Previtero, A. and Thaler, R. H. (2011) Annuitization puzzles. Journal of Economic Perspectives, 25(4): 143–164.Google Scholar
Bernheim, D. B. (1991) How strong are bequest motives? Evidence based on estimates of the demand for life insurance and annuities. Journal of Political Economy, 99(5): 899–927.Google Scholar
BFS (Bundesamt für Statistik Schweiz) (2011) Überblick über die berufliche Vosorge 2004–2011, Table 2011 A 01 1 Z. Available online at http://www.bfs.admin.ch/bfs/portal/de/index/themen/13/02/03/data/01.html#parsys_29182, accessed in July 2013.Google Scholar
BMSVG (Betriebliches Mitarbeiter- und Selbständigenvorsorgegesetz) (2010) Available online at http://www.ris.bka.gv.at, accessed in July 2013.Google Scholar
Boardman, T. (2006) Annuitization lessons from the UK: money-back annuities and other developments. Journal of Risk and Insurance, 73(4): 633–646.Google Scholar
Börsch-Supan, A., Brugiavini, A., Jürges, H., Mackenbach, J., Siegrist, J. and Weber, G. (eds) ( 2005) Health, Ageing and Retirement in Europe – First Results from the Survey of Health, Ageing and Retirement in Europe. Mannheim: Mannheim Research Institute for the Economics of Aging (MEA).Google Scholar
Brown, J., Kling, J., Mullainathan, S. and Wrobel, M. (2008) Why don't people insure Late-Life consumption? A framing explanation of the Under-Annuitization puzzle. American Economic Review: Papers and Proceedings, 98(2): 304–309.Google Scholar
Brown, J., Kapteyn, A., Luttmer, E.F.P. and Mitchell, O. S. (2011) Do consumers know how to value annuities? Complexity as a Barrier to Annuitization. Financial Literacy Center Working Paper, WR-924-SSA, September 2011.Google Scholar
Brown, J., Kapteyn, A. and Mitchell, O. S. (2013) Framing and claiming: how information-framing affects expected social security claiming behavior. Journal of Risk and Insurance, 9999: 1–24.Google Scholar
Brown, J. R. and Poterba, J. M. (2000) Joint life annuities and annuity demand by married couples. Journal of Risk and Insurance, 67(4): 527–553.CrossRefGoogle Scholar
Brugiavini, A. (1993) Uncertainty resolution and the timing of annuity purchases. Journal of Public Economics, 50(1): 31–62.Google Scholar
Bütler, M. and Teppa, F. (2007) The choice between an annuity and a lump sum: results from Swiss pension funds. Journal of Public Economics, 91(10): 1944–1966.CrossRefGoogle Scholar
CGI (Code General des Impôts) (2013) Available online at http://www.legifrance.gouv.fr/affichCode.do;jsessionid=DE33400EB27EEF3228687C6A9B2AEC71.tpdjo14v_1?cidTexte=LEGITEXT000006069577&dateTexte=20130626, accessed in July 2013.Google Scholar
Cocco, J., Gomes, F. and Maenhout, P. (2005) Consumption and portfolio choice over the life-cycle. Review of Financial Studies, 18(2): 491–533.Google Scholar
Covip (Commissione di Vigilanza sui Fondi Pensione) (2012) RELAZIONE PER L'ANNO 2012, p. 91, 111,130. Tables 4.1, 5.1, 6.1. Available online at http://www.covip.it/wp-content/uploads/Relazione-Annuale-2012.pdf, accessed in July 2013.Google Scholar
Davidoff, T., Brown, J. and Diamond, P. (2005) Annuities and individual welfare. American Economic Review, 95(5): 1573–1590.Google Scholar
DOL (U.S. Department of Labor, Employee Benefits Security Administration) (2012) Private Pension Plan Bulletin; Historical Tables and Graphs, (2010 Data Release Version 1.0), p. 25. (401k Plan assets). Available online at http://www.dol.gov/ebsa/pdf/historicaltables.pdf, accessed in July 2013.Google Scholar
Dus, I. and Maurer, R. (2009) Zur Eigenmittelunterlegung von Leistungszusagen in der Auszahlphase bei investmentfondsbasierten Altersvorsorgeverträgen: Ein Gestaltungsvorschlag. Kredit und Kapital, 42(2): 277–312.Google Scholar
Dus, I., Maurer, R. and Mitchell, O. S. (2005) Betting on death and capital markets in retirement: a shortfall risk analysis of life annuities versus phased withdrawal plans. Financial Services Review, 14(3): 169–196.Google Scholar
Dushi, I. and Webb, A. (2004) Household annuitization decisions: simulations and empirical analyses. Journal of Pension Economics and Finance, 3(2): 109–43.Google Scholar
Eurostat (ed.) (2013) Statistical Database. Available online at http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do, accessed in July 2013.Google Scholar
FFSA (Fédération française des sociétés d'assurances) (2011) Assurance de personnes – Données clés 2011, pp. 33–34. Available online at http://www.ffs, accessed in July 2013.Google Scholar
FFSA (Fédération française des sociétés d'assurances) (2013) Les contrats d'assurance retraite en 2011: progression des contrats de particuliers. Available online at http://www.ffsa.fr/sites/jcms/p1_900752/fr/les-contrats-dassurance-retraite-en-2011-progression-des-contrats-de-particuliers?cc=fn_7351, accessed in July 2013.Google Scholar
Finkelstein, A. and Poterba, J. M. (2004) Adverse selection in insurance markets: policyholder evidence from the U.K. annuity market. Journal of Political Economy, 112(1): 183–208.Google Scholar
FMA (Österreichische Finanzmarktaufsicht) (2012) Der Markt für die prämienbegünstigte Zukunftsvorsorge 2011, Stand 5. Oktober 2012, p. 9. Available online at https://www.fma.gv.at/typo3conf/ext/dam_download/secure.php?u=0&file=8320&t=1353164960&hash=a95f216e3089102dc82167ca96a01861, accessed in July 2013.Google Scholar
FP (Fachverband Pensionskassen) (2013) Regelungen für Leistungsberechtigte. Available online at http://portal.wko.at/wk/format_detail.wk?angid=1&stid=192510&dstid=293&opennavid=35450, accessed in July 2013.Google Scholar
FRG (Federal Republic of Germany) (2013) Gesetz zur Verbesserung der Betrieblichen Altersversorgung (1974, last modified 2008), Gesetz über die Zertifizierung von Altersvorsorgeverträgen (2001, last modified 2010), Einkommenssteuergesetz – (1934, last modified 2013), Gesetz zur Reform der gesetzlichen Rentenversicherung und zur Förderung eines kalpitalgedecken Altersvorsorgevermögens/Altersvermögensgesetz (2001), Gesetz zur Neuordnung der einkommenssteuerrechtlichen Behandlung von Altersvorsorgeaufwendungen/Alterseinkünftegesetz (2005). Available online at http://www.gesetze-im-internet.de (service of the Federal Ministry of Justice), accessed in July 2013.Google Scholar
Friedman, B. M. and Warshawsky, M. J. (1990) The cost of annuities: implications for saving behavior and bequests bequests. Quarterly Journal of Economics, 105(1): 135–154.Google Scholar
GDV (Gesamtverband der Deutschen Versicherungswirtschaft e. V.) (2012) Lebensversicherung in Zahlen 2012, p. 16. Available online at http://www.gdv.de/category/downloads/zahlen-fakten/lebensversicherung-in-zahlen/, accessed in July 2013.Google Scholar
Gomes, F. J., Kotlikoff, L. J. and Viciera, L. M. (2008) Optimal life-cycle investing with flexible labor supply: a welfare analysis of life-cycle funds. American Economic Review: Papers and Proceedings, 98: 297–303.Google Scholar
HMRC (HM Revenues and Customs) (2013) Registered Pension Schemes Manual, Technical Pages. Available online at http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM00100000.htm, accessed in July 2013.Google Scholar
Horneff, W., Maurer, R., Mitchell, O. S. and Dus, I. (2008a) Following the rules: integrating asset allocation and annuitisation in retirement portfolios. Insurance: Mathematics and Economics, 42: 396–408.Google Scholar
Horneff, W., Maurer, R. and Stamos, M. (2008b) Optimal gradual annuitization: quantifying the costs of switching to annuities. Journal of Risk and Insurance, 75: 1019–1038.CrossRefGoogle Scholar
Horneff, W., Maurer, R., Mitchell, O. S. and Stamos, M. (2009) Asset Allocation and Location over the Life Cycle with Survival-Contingent Payouts. Journal of Banking and Finance, 33: 1688–1699.Google Scholar
Horneff, W., Maurer, R., Mitchell, O. S. and Stamos, M. (2010) Variable payout annuities and dynamic portfolio choice in retirement. Journal of Pension Economics and Finance, 9: 163–183.Google Scholar
Hu, W. Y. and Scott, J. S. (2007) Behavioral obstacles in the annuity market. Financial Analysts Journal, 63: 71–82.Google Scholar
Hubener, A., Maurer, R. and Rogalla, R. (2013) Optimal Portfolio Choice with Annuities and Life Insurance for Retired Couples. Forthcoming in Review of Finance.CrossRefGoogle Scholar
Hülsmann, J., Schmid, J. and Schöll, S. (2001) Rentenreform in sechs westeuropäischen Ländern – Ein Blick über den Tellerrand, WIP – Occasional Papers Nr. 15-2001.Google Scholar
ICI (Investment Company Institute) (2013) Report: Quarterly Retirement Market Data, First Quarter 2013. Available online at http://www.ici.org/search, accessed in July 2013.Google Scholar
Inkman, J., Lopes, P. and Michaelides, A. (2011) How deep is the annuity market participation puzzle? Review of Financial Studies, 24: 279–319.Google Scholar
James, E. and Song, X. (2001) Annuities markets around the world: Money's worth and risk intermediation. SSRN Working Paper. Available online at http://ssrn.com/abstract=287375Google Scholar
Johnson, R. W., Burman, L. E. and Kobes, D. I. (2004) Annuitized wealth at older ages: evidence from the Health and Retirement Study, Final Report to the Employee Benefits Security Administration. Washington, DC: U.S. Department of Labor.Google Scholar
Kotlikoff, L. J. and Spivak, A. (1981) The family as an incomplete annuities market. Journal of Political Economy, 89: 372–391.Google Scholar
Lockwood, L. (2012) Bequest motives and the annuity puzzle. Review of Economic Dynamics, 15: 226–243.Google Scholar
Maurer, R. and Somova, B. (2009) Rethinking retirement income strategies – how can we secure better outcomes for future retirees? Brussels: EFAMA Publication Series.Google Scholar
Maurer, R., Mitchell, O. S., Rogalla, R. and Kartashov, V. (2013) Life-cycle portfolio choice with systematic longevity risk and variable Investment-linked deferred annuities. Journal of Risk and Insurance, 80: 649–676.Google Scholar
Milevsky, M. (2002) Optimal annuitization policies: analysis of the options. North American Actuarial Journal, 5: 57–69.CrossRefGoogle Scholar
Milevsky, M. and Young, V. (2007) The timing of annuitization: investment dominance and mortality risk. Insurance: Mathematics and Economics, 40: 135–144.Google Scholar
Mitchell, O. S., Poterba, J. M., Warshawsky, M. J. and Brown, J. R. (1999) New evidence on the money's worth of individual annuities. American Economic Review, 89: 1299–1318.Google Scholar
OECD (ed.) (2005) Pensions at glance. Paris.Google Scholar
OECD (ed.) (2009) OECD recommendation on core principles of occupational pension regulation. Status per 5th June 2009. Available online at http://www.oecd.org/dataoecd/14/46/33619987.pdf, accessed in September 2013.Google Scholar
OECD (2012) Pension Statistics. Available online at http://stats.oecd.org/BrandedView.aspx?oecd_bv_id=pension-data-en&doi=data-00517-en, accessed in July 2013.Google Scholar
OECD (2013) OECD Economic Outlook No. 93 (database). Available online at http://stats.oecd.org/index.aspx?queryid=48126, accessed in July 2013.Google Scholar
ÖNB (Österreichische Nationalbank) (2013a) Statistiken: Pensionskassen-Vermögensbestand. Status per 22nd May 2013. Available online at http://www.oenb.at/isaweb/report.do?lang=DE&report=3.16, accessed in July 2013.Google Scholar
ÖNB (Österreichische Nationalbank) (2013b) Statistiken: Betriebliche Vorsorgekassen. Status per 22nd May 2013. Available online at http://www.oenb.at/isaweb/report.do?report=3.13.2, accessed in July 2013.Google Scholar
ONS (Office for National Statistics UK) (2013) Pension Trends – Chapter 9: Pension Scheme Funding and Investment, 2013 Edition, p. 1. Available online at http://www.ons.gov.uk/ons/rel/pensions/pension-trends/chapter-9-pension-scheme-funding-and-investment-2013-edition/art-pt-chapter-9-2013.html, accessed in July 2013.Google Scholar
Palme, M. and Svensson, I. (1999) Social security, occupational pensions, and retirement in Sweden. In Gruber, J. and Wise, D. A. (eds), Social Security and Retirement Around the World. Chicago: University of Chicago Press, pp. 355–402.Google Scholar
Peijnenburg, K., Nijman, T. and Werker, B. (2010a) Optimal Annuitization with Incomplete Annuity Markets and Background Risk during Retirement. Netspar Discussion Paper. Available online at http://arno.uvt.nl/show.cgi?fid=121433Google Scholar
Peijnenburg, K., Nijman, T. and Werker, B. (2010b) Health Cost Risk and Optimal Retirement Provision: A Simple Rule for Annuity Demand, Pension Research Council Working Paper No. WPS 2010-08. Available online at http://www.pensionresearchcouncil.org/publications/document.php?file=879CrossRefGoogle Scholar
Pensplan (Pensplan Centrum AG) (2012) Ratgeber der Zusatzvorsorge. Available online at http://www.pensplan.com/media/BrochurePensplan_de.pdf, accessed in July 2013.Google Scholar
Queisser, M. and Vittas, D. (2000) The Swiss multi-pillar pension system: triumph of common sense? World Bank Development Research Group (Ed.), Working Paper Series, August 2000.Google Scholar
Read, D., Löwenstein, G. and Rabin, M. (1999) Choice bracketing. Journal of Risk and Uncertainty, 19: 171–197.Google Scholar
Schaus, S. L. (2005) Annuities make a comeback. Journal of Pension Benefits, 12: 34–38.Google Scholar
Schreiber, P. and Weber, M. (2013) Time inconsistent preferences and the annuitization decision. SSRN Working Paper. Available online at http://ssrn.com/abstract=2217701Google Scholar
Schweizerische Nationalbank (ed.) (2007) Bankenstatistisches Monatsheft Juli 2007, Zürich.Google Scholar
Schweizerische Nationalbank (2013) Monatsheft Mai 2013, p. 77. Available online at http://www.snb.ch/de/mmr/reference/bankenstat_monatsheft_2013_05/source/bankenstat_monatsheft_2013_05.de.pdf, accessed in July 2013.Google Scholar
Schweizerischer Versicherungsverband (2007) Zahlen und Fakten 2007. Zürich.Google Scholar
Schwind, J. (2013) Die Deckungsmittel der betrieblichen Altersversorgung, in: Betriebliche Altersversorgung 4. 346. Available online at http://www.aba-online.de/deckungsmittel-der-bav.html, accessed in July 2013.Google Scholar
SE (Schweizerische Eidgenossenschaft) (2013) Bundesgesetz über die berufliche Alters-, Hinterlassenen- und Invalidenvorsorge (Stand 1. Januar 2013). Available online at http://www.admin.ch/opc/de/classified-compilation/19820152/index.html,Art.37, accessed in July 2013.Google Scholar
SPA (Swedish Pension Agency) (2012) Annual Report of the Swedish Pension System (Orange Report) 2012. Available online at http://www.pensionsmyndigheten.se/, accessed in July 2013.Google Scholar
Statistics Sweden (2013) Finansräkenskaperförstakvartalet 2013, p. 34. Table 6. Available online at http://www.scb.se/Statistik/FM/FM0103/2013K01/FM0103_2013K01_SM_FM17SM1302.pdf, accessed in July 2013.Google Scholar
SVV (Schweizerischer Versicherungsverband) (2009) Zahlen und Fakten: Lebensversicherungsgeschäft Schweiz. Available online at http://www.svv.ch/de/publikationen/archiv-zahlen-und-fakten, accessed in July 2013.Google Scholar
TPAS (The Pensions Advisory Service UK) (2013) Taking payments from your pension pot. Available online at http://www.pensionsadvisoryservice.org.uk/taking-payments-from-your-pension-pot, accessed in July 2013.Google Scholar
TPR (The Pensions Regulator UK) (2013) Glossary. Available online at http://www.thepensionsregulator.gov.uk/Glossary.aspx#s1327, accessed in July 2013.Google Scholar
Uniqua (2013) UNIQA Mitarbeitervorsorge – Betriebliche Vorsorgekasse. Available online at http://www.uniqa.at/uniqaat/cms/geschaeftskunden/betrieblichealtersvorsorge/Selbstaendigenvorsorge.xhtml, accessed in July 2013.Google Scholar
VVÖ (Versicherungsverband Österreich) (2013) Prämienbegünstigte Zukunftsvorsorge. Available online at http://www.vvo.at/pramienbegunstigte-zukunftsvorsorge-4.html, accessed in July 2013.Google Scholar
Yaari, M. (1965) Uncertain lifetime, life insurance and the theory of the consumer. Review of Economic Studies, 32: 137–150.Google Scholar