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Welfare implications of product choice regulation during the payout phase of funded pensions

Published online by Cambridge University Press:  13 December 2013

VANYA HORNEFF ,
BARBARA KASCHÜTZKE ,
RAIMOND MAURER  and
RALPH ROGALLA
VANYA HORNEFF
Affiliation:
Department of Finance, Goethe University Frankfurt, Grüneburgplatz 1 (Uni-PF H 23), 60323 Frankfurt am Main, Germany (e-mail: vhorneff@finance.uni-frankfurt.de, kaschuetzke@finance.uni-frankfurt.de, maurer@finance.uni-frankfurt.de, rogalla@finance.uni-frankfurt.de)
BARBARA KASCHÜTZKE
Affiliation:
Department of Finance, Goethe University Frankfurt, Grüneburgplatz 1 (Uni-PF H 23), 60323 Frankfurt am Main, Germany (e-mail: vhorneff@finance.uni-frankfurt.de, kaschuetzke@finance.uni-frankfurt.de, maurer@finance.uni-frankfurt.de, rogalla@finance.uni-frankfurt.de)
RAIMOND MAURER
Affiliation:
Department of Finance, Goethe University Frankfurt, Grüneburgplatz 1 (Uni-PF H 23), 60323 Frankfurt am Main, Germany (e-mail: vhorneff@finance.uni-frankfurt.de, kaschuetzke@finance.uni-frankfurt.de, maurer@finance.uni-frankfurt.de, rogalla@finance.uni-frankfurt.de)
RALPH ROGALLA
Affiliation:
Department of Finance, Goethe University Frankfurt, Grüneburgplatz 1 (Uni-PF H 23), 60323 Frankfurt am Main, Germany (e-mail: vhorneff@finance.uni-frankfurt.de, kaschuetzke@finance.uni-frankfurt.de, maurer@finance.uni-frankfurt.de, rogalla@finance.uni-frankfurt.de)
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Abstract

In many countries, governmental support for funded old-age programmes comes at the cost of at least partial mandatory annuitisation of accumulated assets in retirement. We survey regulatory frameworks for the payout phase of funded pension systems in seven European countries and the US and study the influence of mandatory annuitisation on the welfare of both rational and behaviourally influenced individuals using a dynamic life-cycle model. We show that mandatory immediate full annuitisation of retirement assets will reduce rational individuals’ certainty equivalent pension wealth by up to 54%. Softening the strict immediate annuitisation requirements along the line of regulatory realities in some of the surveyed countries reduces utility losses considerably. Behaviourally restricted individuals can benefit from full annuitisation at retirement, but generally they will also prefer more flexible regulation.

Keywords

G11G28H24H55Pension regulationannuitisationcross-country surveyportfolio choice
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 13 , Issue 3 , July 2014 , pp. 272 - 296
Copyright
Copyright © Cambridge University Press 2013 

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