Why the deferred annuity makes sense - an application of hyperbolic discounting to the annuity puzzle

Chen, A., Haberman, S. & Thomas, S. (2017). Why the deferred annuity makes sense - an application of hyperbolic discounting to the annuity puzzle. Paper presented at the International Actuarial Association Life Colloquium, 23-24 Oct 2017, Barcelona, Spain.

[img]
Preview
Text - Accepted Version
Download (319kB) | Preview
[img]
Preview
Text - Presentation
Download (268kB) | Preview

Abstract

The low demand of immediate annuities at retirement has been a longstanding puzzle. We show that a hyperbolic discount model can explain this behaviour and results in attractiveness of long-term deferred annuities. We find that a 65-year-old male would pay 24 percent higher than the fair price for a 30-year deferred annuity. Moreover, if governments were to introduce a pre-commitment device which requires pensioners to make annuitisation decisions 10 years before retirement, the take up rate of annuities could become higher.

Item Type: Conference or Workshop Item (Paper)
Divisions: Cass Business School > Faculty of Actuarial Science & Insurance
URI: http://openaccess.city.ac.uk/id/eprint/18436

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics