Working Paper: NBER ID: w26285
Authors: Gastón Illanes; Manisha Padi
Abstract: Retirement policy has indirect effects on its beneficiaries, through the “crowd-out” or “crowd-in” of insurance markets. We study how retirement policy in Chile, which limits the drawdown of retirement assets but otherwise does not provide or require fixed income in retirement, results in more than 60% of eligible retirees purchasing private annuities at low prices. We estimate a demand model to show that replacing this voluntary policy with partial mandatory annuitization and removing limits on drawdowns causes the private annuity market to partially unravel. Under our model, this reform leads to a welfare increase equivalent to US$4,000 of additional pension savings on average, but welfare effects are heterogenous and many retirees would be harmed due to the higher prices of private annuities. Our results highlight the importance of considering the impact of policy reforms on the equilibria of related markets.
Keywords: Retirement Policy; Annuity Market; Chile; Welfare Effects; Private Insurance
JEL Codes: D15; D82; G22; G28; H31; H44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Retirement policy in Chile (J26) | Purchase of private annuities (G52) |
| Voluntary retirement policy (J26) | Demand for annuities (G52) |
| Mandatory annuitization and removal of drawdown limits (G23) | Private annuity market equilibria (D52) |
| Reform to mandatory annuitization (G52) | Welfare increase (I38) |
| Higher annuity prices (G52) | Demand for annuities (G52) |