City Research Online

Abstract

The low demand for immediate annuities at retirement has been a long-standing puzzle. We show that a hyperbolic discount model can explain this behaviour and results in the attractiveness of long-term deferred annuities. With a set of benchmark assumptions, we find that retirees would be willing to pay a much higher price than the actuarial fair price for annuities with longer deferred periods. Moreover, if governments were to introduce a pre-commitment device which requires pensioners to make annuitisation decisions around ten years before retirement, the take up rate of annuities could become higher.

Publication Type:	Article
Additional Information:	This article is published in a revised form in Journal of Pension Economics & Finance https://www.cambridge.org/core/journals/journal-of-pension-economics-and-finance. This version is free to view and download for private research and study only. Not for re-distribution, re-sale or use in derivative works. © copyright holder.
Publisher Keywords:	Hyperbolic discounting, Deferred annuities, Annuity puzzle, Reservation price
Subjects:	H Social Sciences > HG Finance J Political Science > JN Political institutions (Europe) > JN101 Great Britain
Departments:	Bayes Business School > Actuarial Science & Insurance Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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