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Framing and the annuitization decision – Experimental evidence from a Dutch pension fund

Published online by Cambridge University Press:  10 July 2017

CHRISTIAN BOCKWEG ,
EDUARD PONDS ,
ONNO STEENBEEK  and
JOYCE VONKEN
CHRISTIAN BOCKWEG
Affiliation:
Lucht Probst Associates GmbH, Germany
EDUARD PONDS
Affiliation:
Tilburg University, APG Asset Management, Netspar, The Netherlands (e-mail: eduard.ponds@apg.nl)
ONNO STEENBEEK
Affiliation:
Erasmus School of Economics, APG Asset Management, The Netherlands
JOYCE VONKEN
Affiliation:
Tilburg University, APG, The Netherlands
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Abstract

We report the effects of framing settings in annuity demand after conducting a survey-based experiment with members of a Dutch occupational pension plan. We gave participants the option to allocate up to 20% of their projected pension accrual to a lump sum. In particular, we investigated the joint effects of consumption and investment frames and gain and loss frames. We present strong evidence for framing effects in annuity demand. Framing effects remain significant when we control for individual characteristics. We also find robust evidence of individual characteristics influencing annuity demand, highlighting the importance of heterogeneity among participants, for example risk aversion, time preference and trust in the pension fund. Gender and long-term debt positions have significant impact how one responds to framing. We conclude that Dutch plan members generally welcome the partial lump sum option over mandatory full annuitization. The application of frames appears to predictively steer annuity demand. The precise effect framing may have, would probably also depend on the institutional environment, which predefines the perspective through which individuals filter annuities.

Keywords

G02G11H55Annuity puzzleframingpension annuitieslump sum
Type
Article
Information
Journal of Pension Economics & Finance , Volume 17 , Special Issue 3: Advances in Understanding Pension Decisions , July 2018 , pp. 385 - 417
Copyright
Copyright © Cambridge University Press 2017 

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