Working Paper: CEPR ID: DP7940
Authors: Joachim Inkmann; Paula Lopes; Alexander Michaelides
Abstract: Using U.K. microeconomic data, we analyze the empirical determinants of voluntary annuity market demand. We find that annuity market participation increases with financial wealth, life expectancy and education and decreases with other pension income and a pos-sible bequest motive for surviving spouses. We then show that these empirically motivated determinants of annuity market participation have the same, quantitatively important, effects in a life-cycle model of annuity and life insurance demand, saving and portfolio choice.Moreover, reasonable preference parameters predict annuity demand levels comparable to the data. For stockholders, a strong bequest motive can simultaneously generate balanced portfolios and low annuity demand.
Keywords: annuities; bequest motive; life insurance; portfolio choice
JEL Codes: E21; G11; H00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial Wealth (G19) | Annuity Market Participation (G52) |
| Life Expectancy (J17) | Annuity Market Participation (G52) |
| Education (I29) | Annuity Market Participation (G52) |
| Pension Income (H55) | Annuity Market Participation (G52) |
| Bequest Motive (D64) | Annuity Market Participation (G52) |
| Financial Wealth (G19) | Annuity Market Participation (Stockholders) (G22) |
| Financial Wealth (G19) | Annuity Market Participation (Non-Stockholders) (G22) |