DP5316 Should You Take a Lump-Sum or Annuitize? Results from Swiss Pension Funds

Author(s): Monika Bütler, Federica Teppa
Publication Date: October 2005
Keyword(s): annuity, choice anomalies, lump sum, occupational pension
JEL(s): D91, H55, J26
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5316

We use a unique dataset on individual retirement decisions in Swiss pension funds to analyze the choice between an annuity and a lump sum at retirement. Our analysis suggests the existence of an 'acquiescence bias', meaning that a majority of retirees chooses the standard option offered by the pensions fund or suggested by common practice. Small levels of accumulated pension capital are much more likely to be withdrawn as a lump sum, suggesting a potential moral hazard behaviour or a magnitude effect. We hardly find evidence for adverse selection effects in the data. Single men, for example, whose money?s worth of an annuity is considerably below the corresponding value of married men, are not more likely to choose the capital option.