DP6930 The Role of the Annuity's Value on the Decision (Not) to Annuitize: Evidence from a Large Policy Change

Author(s): Monika B├╝tler, Stefan Staubli, Maria Grazia Zito
Publication Date: August 2008
Keyword(s): Annuity Puzzle, Occupational Pension, Policy Change
JEL(s): D91, H55, J26
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6930

This paper presents new evidence on how the annuitization decision is affected by changes in the annuity's value. We take advantage of an unprecendented change in policy, which in 2004 moderated the super-mandatory Swiss occupational pension scheme: The 20 percent reduction in the rate at which retirement capital is translated into a life-long annuity equates to a net present value loss of approximately 20'000 SFR (20'000 US$) for the average retiree. Using administrative data and correcting for anticipation effects, we show that due to the change in policy there was an approximately 8 percentage point change in the share of men choosing to annuitize their savings. We also show that the estimated responsiveness of the cash-out decision to variations in a utility based measure for the annuity value is comparable to results of previous studies, which employed completely different sources of variation in the annuity's value.