Webex-seminar: Pension pay-out preferences
On Tuesday November 16th 2021, Rik Dillingh (CPB) will give an online presentation titled: "Pension pay-out preferences." To attend this seminar, please send an e-mail to Simone Pailer (S.Pailer@cpb.nl). Then you will receive a Webex-invitation via Outlook.
In this study we examine to what extent different pension payout options appeal to people. We focus on three payout plans that are currently available or announced in the Netherlands. These options are a flat-rate annuity, a high/low annuity-based profile, or a partial lump sum at retirement in exchange for a lower annuity pension thereafter. We make use of a vignette study, where participants advice a household similar to theirs about the pension payout options, under several scenarios. These scenarios differ in interest rate and replacement rate and in the specific design of the payout options. We find that while a constant payout pattern 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 the choice scenarios. A majority of the respondents adjusts their advice to the circumstances of the choice, and switches their preferred option at least once. Our regression results indicate that interest in a lump sum is higher when a higher percentage can be taken out as lump sum and lower when interest rates or replacement rates are higher. Interest in a high/low annuity-based profile is higher when the high annuity is valid for a shorter period. Further, we find that choosing the constant annuity is negatively correlated with income, willingness to take risks and financial literacy, but we find little evidence for differences in preferences by gender, age or type of household. Finally, we propose to investigate how pension participants can be better and more actively informed about their payout options.