Abstract
AbstractThis paper reports the results from a large telephone survey of 1,000 retiring white-collar workers in Sweden. Shortly before the interview, the participants at age 65 had a choice of receiving a life annuity by default or opting for a fixed-term payout, with a minimum payout length of 5 years. Large monetary amounts were at stake in the payout decision of the survey participants; the average monthly pension payment under the life annuity amounted to US $280. Comparing the survey responses with administrative records on actual payout choices, I find that a majority of retiring white-collar workers fail to recall their payout decision. The recollection rate is much lower among annuitants (those who chose the default option); only 40% of the annuitants accurately recalled their payout decision compared to 77% of those who opted for a fixed-term payout. Beyond payout choice, few individual characteristics predict successful recollection.
Highlights
The ongoing shift in pension provision from defined benefit (DB) to defined contribution (DC) has brought more flexibility to the decumulation phase of retirement
Large monetary amounts were at stake in the payout decision of the survey participants; the average monthly pension payment under the life annuity amounted to US$280
This study focuses on payout choices in Industrins och handelns tilläggspension (ITP), the pension plan for white-collar workers in the private sector
Summary
The ongoing shift in pension provision from defined benefit (DB) to defined contribution (DC) has brought more flexibility to the decumulation phase of retirement. Some previous studies rely on administrative data from individual pension companies or pension plan administrators (Bütler and Teppa, 2007; Benartzi et al, 2011; Chalmers and Reuter, 2012; Previtero, 2014; Hagen, 2015; Bütler et al, 2017, 2013; Park and Banerjee, 2020) While such data contain information on actual payout choices and, in some cases, individual characteristics, there is no information on the retirement savers’ own reports of their payout decision (or the reasons thereof). The second most frequent self-reported reason for choosing a fixed-term payout relates to a willingness to ‘cash out the money before dying.’ In line with theories of loss aversion, individuals may avoid annuitization because they place more weight on the potential losses in the case of an early death than the equivalent gains in the case of longer life (Hu and Scott, 2007).
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