Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/46250 
Year of Publication: 
2011
Series/Report no.: 
CESifo Working Paper No. 3493
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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
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