Scandinavian Working Papers in Economics

Working Paper Series, Center for Fiscal Studies,
Uppsala University, Department of Economics

No 2014:13: The determinants of annuitization: evidence from Sweden

Johannes Hagen ()
Additional contact information
Johannes Hagen: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: This paper uses unique micro data from a Swedish occupational pension plan to study the determinants of annuitization. The data is merged with national administrative data to create a large data set with rich individual background characteristics. The pension can either be withdrawn as a life annuity or during a fixed number of years with a minimum of five years. Low accumulation of assets is strongly associated with the choice of the 5-year payout. Consistent with the predictions of a life-cycle model, retirees who choose the 5-year payout are in worse health and exhibit higher ex-post mortality rates than annuitants. I also find that the parents of annuitants live longer than the parents of those who choose the 5- year payout. This suggests that individuals form expectations about how long they are likely to live based on the life-span patterns of their parents and take this into account when they decide whether to annuitize or not.

Keywords: Annuity puzzle; Longevity insurance; Occupational pension; Adverse selection

JEL-codes: D91; H55; J26; J32

34 pages, November 14, 2014

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