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The implication of the hyperbolic discount model for the annuitisation decisions

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  • Chen, Anran
  • Haberman, Steven
  • Thomas, Stephen

Abstract

The low demand for immediate annuities at retirement has been a long-standing puzzle. We show that a hyperbolic discount model can explain this behaviour and results in the attractiveness of long-term deferred annuities. With a set of benchmark assumptions, we find that retirees would be willing to pay a much higher price than the actuarial fair price for annuities with longer deferred periods. Moreover, if governments were to introduce a pre-commitment device which requires pensioners to make annuitisation decisions around 10 years before retirement, the take up rate of annuities could become higher.

Suggested Citation

  • Chen, Anran & Haberman, Steven & Thomas, Stephen, 2020. "The implication of the hyperbolic discount model for the annuitisation decisions," Journal of Pension Economics and Finance, Cambridge University Press, vol. 19(3), pages 372-391, July.
    • Handle: RePEc:cup:jpenef:v:19:y:2020:i:3:p:372-391_6
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