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Framing and the annuitization decision – Experimental evidence from a Dutch pension fund

Framing and the annuitization decision – Experimental evidence from a Dutch pension fund AbstractWe report the effects of framing settings in annuity demand after conducting a survey-based experiment with members of a Dutch occupational pension plan. We gave participants the option to allocate up to 20% of their projected pension accrual to a lump sum. In particular, we investigated the joint effects of consumption and investment frames and gain and loss frames. We present strong evidence for framing effects in annuity demand. Framing effects remain significant when we control for individual characteristics. We also find robust evidence of individual characteristics influencing annuity demand, highlighting the importance of heterogeneity among participants, for example risk aversion, time preference and trust in the pension fund. Gender and long-term debt positions have significant impact how one responds to framing. We conclude that Dutch plan members generally welcome the partial lump sum option over mandatory full annuitization. The application of frames appears to predictively steer annuity demand. The precise effect framing may have, would probably also depend on the institutional environment, which predefines the perspective through which individuals filter annuities. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Pension Economics and Finance Cambridge University Press

Framing and the annuitization decision – Experimental evidence from a Dutch pension fund

Journal of Pension Economics and Finance , Volume 17 (3): 33 – Jul 10, 2017

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Publisher
Cambridge University Press
Copyright
Copyright © Cambridge University Press 2017 
ISSN
1475-3022
eISSN
1474-7472
DOI
10.1017/S147474721700018X
Publisher site
See Article on Publisher Site

Abstract

AbstractWe report the effects of framing settings in annuity demand after conducting a survey-based experiment with members of a Dutch occupational pension plan. We gave participants the option to allocate up to 20% of their projected pension accrual to a lump sum. In particular, we investigated the joint effects of consumption and investment frames and gain and loss frames. We present strong evidence for framing effects in annuity demand. Framing effects remain significant when we control for individual characteristics. We also find robust evidence of individual characteristics influencing annuity demand, highlighting the importance of heterogeneity among participants, for example risk aversion, time preference and trust in the pension fund. Gender and long-term debt positions have significant impact how one responds to framing. We conclude that Dutch plan members generally welcome the partial lump sum option over mandatory full annuitization. The application of frames appears to predictively steer annuity demand. The precise effect framing may have, would probably also depend on the institutional environment, which predefines the perspective through which individuals filter annuities.

Journal

Journal of Pension Economics and FinanceCambridge University Press

Published: Jul 10, 2017

Keywords: G02; G11; H55; Annuity puzzle; framing; pension annuities; lump sum

References