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ANNUITIZATION BEHAVIOR: TAX INCENTIVES VS. PRODUCT DESIGN

Published online by Cambridge University Press:  17 July 2014

Alexander Kling ,
Andreas Richter  and
Jochen Ruß
Alexander Kling*
Affiliation:
Institut für Finanz- und Aktuarwissenschaften, Ulm, Germany phone: +49 731 20 644 242
Andreas Richter
Affiliation:
Professor, Chair in Risk & Insurance, Ludwig-Maximilians University Munich, Germany phone: +49 89 2180 3755 E-Mail: richter@lmu.de
Jochen Ruß
Affiliation:
Managing Partner, Institut für Finanz- und Aktuarwissenschaften, Ulm, Germany phone: +49 731 20 644 233 E-Mail: j.russ@ifa-ulm.de
*
E-Mail: a.kling@ifa-ulm.de
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Abstract

We analyze and compare the impact of tax incentives and of introducing enhanced annuities on annuitization behavior considering heterogeneity among the insured. We find that tax incentives for annuitization result in a significant increase of the portion of people who should annuitize and also an increase of the insurer's profit since less healthy individuals also annuitize, i.e. adverse selection is reduced. However, the problem that different insured receive a different value for money is even increased by tax incentives. If enhanced annuities are introduced, the percentage of insured who should annuitize further increases. Adverse selection is further reduced and the differences in value for money from annuitizing shrink.

Keywords

Tax incentivesenhanced annuitiesoptimal annuitization
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 44 , Issue 3 , September 2014 , pp. 535 - 558
Copyright
Copyright © ASTIN Bulletin 2014 

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