City Research Online

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.

Publication Type:	Conference or Workshop Item (Paper)
Departments:	Bayes Business School > Actuarial Science & Insurance

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