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Title:How much do means-tested benefits reduce the demand for annuities? PDF Logo
Authors:Bütler, Monika
Peijnenburg, Kim
Staubli, Stefan
Issue Date:2011
Series/Report no.:CESifo working paper: Empirical and Theoretical Methods 3493
Abstract:We analyze the effect of means-tested benefits on annuitization decisions. Most industrialized countries provide a subsistence level consumption floor in old age, usually in the form of means-tested benefits. The availability of such means-tested payments creates an incentive to cash out (occupational) pension wealth for low and middle income earners, instead of taking the annuity. Agents trade-off the advantages from annuitization, receiving the wealthenhancing mortality credit, to the disadvantages, giving up 'free' wealth in the form of means-tested supplemental benefits. We find that the availability of means-tested benefits can reduce the desired annuitization levels substantially. Using individual level data, we show that the model's predicted annuitization rates as a function of the level of pension wealth are roughly consistent with the cash-out patterns of occupational pension wealth observed in Switzerland.
Subjects:means-tested benefit
occupational pension
annuity
life-cycle model
JEL:D81
D91
G23
J26
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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