Suboptimality of Immediate Annuitization in Private Pension Schemes

Immediate annuitisation as a strategy for a welfare maximization for a payout phase in private pension schemes has been widely criticized. We examine the self-annuitisation strategies under two different consumption rates using programmed withdrawal compared to the immediate annuitization for a reti...

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Bibliographic Details
Published inEkonomický časopis Vol. 64; no. 2; pp. 169 - 190
Main Authors Šebo, Ján, Šebová, Ľubica
Format Journal Article
LanguageEnglish
Published Ekonomický ústav SAV a Prognostický ústav SAV 2016
Institute of Economic Research of the SAS and Institute for Forecasting SAS (co-publisher)
Subjects
Financial Markets
National Economy
Welfare systems
private DC pension
programmed withdrawal
annuity
information asymmetry
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ISSN0013-3035

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Summary:Immediate annuitisation as a strategy for a welfare maximization for a payout phase in private pension schemes has been widely criticized. We examine the self-annuitisation strategies under two different consumption rates using programmed withdrawal compared to the immediate annuitization for a retired individual subject to uncertain portfolio returns and longevity risk. The aim is to examine the utility of both approaches under the existence of longevity risk on one side and bequest on the other. Results could serve as a basis for further discussion on improving the legislature on pay-out phase in Slovak private DC pension pillar.
ISSN:0013-3035