Abstract
| Original language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | Econometrics |
| Number of pages | 36 |
| Volume | 2010-43 |
| Publication status | Published - 2010 |
Publication series
| Name | CentER Discussion Paper |
|---|---|
| Volume | 2010-43 |
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Keywords
- Pension Benefit Claiming
- Delay Options
- Actuarial Nonequivalence
- Preference-free Dominance
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When Can Insurers Offer Products That Dominate Delayed Old-Age Pension Benefit Claiming? / Sanders, E.A.T.; De Waegenaere, A.M.B.; Nijman, T.E.
Tilburg : Econometrics, 2010. (CentER Discussion Paper; Vol. 2010-43).Research output: Working paper › Discussion paper › Other research output
TY - UNPB
T1 - When Can Insurers Offer Products That Dominate Delayed Old-Age Pension Benefit Claiming?
AU - Sanders, E.A.T.
AU - De Waegenaere, A.M.B.
AU - Nijman, T.E.
N1 - Pagination: 36
PY - 2010
Y1 - 2010
N2 - It is common practice for public pension schemes to offer individuals the option to delay benefit claiming until after the normal retirement age and adjust the annual benefit level as a result. This adjustment is often not actuarially neutral with respect to the age at which benefits are claimed. The degree of actuarial nonequivalence varies by interest rates as well as individual characteristics such as gender and age. In this paper we show that actuarial nonequivalence can imply that deferring benefit claiming is suboptimal, irrespective of the preferences of the individual. Specifically, we derive preference-free conditions under which delaying benefit claiming is dominated by claiming benefits early, and using them to buy super-replicating annuity products from an insurance company. We find that the degree of actuarial nonequivalence in public pension schemes is such that such dominating strategies can exist even when the purchase of annuities would be significantly more costly than what is currently observed. If individuals choose to strategically exploit these dominating strategies, this will affect benefit claiming behavior, which in turn affects long run program costs.
AB - It is common practice for public pension schemes to offer individuals the option to delay benefit claiming until after the normal retirement age and adjust the annual benefit level as a result. This adjustment is often not actuarially neutral with respect to the age at which benefits are claimed. The degree of actuarial nonequivalence varies by interest rates as well as individual characteristics such as gender and age. In this paper we show that actuarial nonequivalence can imply that deferring benefit claiming is suboptimal, irrespective of the preferences of the individual. Specifically, we derive preference-free conditions under which delaying benefit claiming is dominated by claiming benefits early, and using them to buy super-replicating annuity products from an insurance company. We find that the degree of actuarial nonequivalence in public pension schemes is such that such dominating strategies can exist even when the purchase of annuities would be significantly more costly than what is currently observed. If individuals choose to strategically exploit these dominating strategies, this will affect benefit claiming behavior, which in turn affects long run program costs.
KW - Pension Benefit Claiming
KW - Delay Options
KW - Actuarial Nonequivalence
KW - Preference-free Dominance
M3 - Discussion paper
VL - 2010-43
T3 - CentER Discussion Paper
BT - When Can Insurers Offer Products That Dominate Delayed Old-Age Pension Benefit Claiming?
PB - Econometrics
CY - Tilburg
ER -