Chapter

Reasons for the annuity puzzle

Edmund Cannon and Ian Tonks

in Annuity Markets

Published in print October 2008 | ISBN: 9780199216994
Published online January 2009 | e-ISBN: 9780191711978 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199216994.003.0008
Reasons for the annuity puzzle

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This chapter discusses a variety of reasons why it may be rational to avoid full annuitization. It discusses the interaction of annuities with state pensions, deferring annuitization, expenditure patterns in retirement, and long-term care costs. It explains the different types of adverse selection that might arise in annuity markets. It stresses that the apparent dislike of annuitizing may be due to lack of comprehension or to psychological reasons that are not strictly rational.

Keywords: adverse selection; deferring annuitization; behavioural economics; framing effects; expenditure patterns; loss aversion; psychological reasons

Chapter.  10698 words.  Illustrated.

Subjects: Pensions

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