November 26, 2021

Pension Payout Preferences

Dutch retirees – and individuals who are close to retirement – show a clear interest in two alternatives for the default lifelong flat rate annuity. The first alternative is the currently already available option of a high/low annuity based profile, with a higher annuity in the first years of retirement and a lower annuity after that. The second alternative is the announced new option of a partial lump sum at retirement, combined with a lower monthly annuity. In a survey experiment with over a thousand participants we investigated how appealing these different payout options are to retirees, and what influences their preferences.
Opened piggy bank

There is significant interest in all three payout options. While the default option of a constant annuity is most popular, there is also substantial interest in the alternative options, with both the high/low and the lump sum option being chosen in almost 30% of cases. The preference for a specific option depends on the choice parameters and the economic setting. Interest in a lump sum is higher if the size of the lump sum increases and interest in a high/low annuity-based profile is higher when the high annuity is valid for a shorter period. Higher replacement rates and a higher interest rate both increase the preference for the constant payout pattern. Individual characteristics also play a role in the choice of the preferred option. 


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