Security in Uncertain Times : Policies for Increasing the Popularity of Life Annuities Among Retirees

Life annuities offer retirees an assured income stream for as long as they live. This makes it surprising that they are unpopular in most markets where their purchase is not compelled by government policy. With the numbers of retirees in the population set to increase dramatically, this low take-up rate of life annuities could exacerbate financial insecurity. Consequently, it is in society's interest to implement non-coercive policies that increase annuitization levels. Although there is research that has focused on the possible causes of low annuitization rates, much of this research falls short of suggesting comprehensive strategies for persuading retirees to annuitize their savings.This article discusses what mix of policies would increase the attractiveness of life annuities. It does this by determining the salient characteristics of the few markets where life annuities are popular. It then suggests how the correct policy settings could make such characteristics a feature of the mainstream annuity market. It also discusses other policies, including limited tax incentives or subsidies on annuities that might play an important role. It is argued that policy innovations such as these are preferable to making the purchase of annuities compulsory. This is because the one-size-fits-all approach will not be ideal for everyone, and it interferes with freedom of choice, an important right in a capitalist society. An alternative is to make annuity purchases a default choice. But this is effectively compulsion by stealth as it relies on inertia and, therefore, carries some of the disadvantages of mandatory annuitization. The article concludes with a discussion of how the appropriate marketing and innovation of different life annuity products could supplement annuity-maximizing policies and further improve annuitization rates