The Role of the Annuity’s Value on the Decision (Not) to Annuitize: Evidence from a Large Policy Change

This paper presents new evidence on how the annuitization decision is affected by changes in the annuity’s value. We take advantage of an unprecedented change in policy in a number of Swiss occupational pension plans: The 20 percent reduction in the rate at which retirement capital is translated into a life-long annuity implied a net present value loss of approximately 20’000 SFR (18’000 US$) for the average affected retiree. To estimate the impact of the policy change we use administrative data from companies who did and one big company who did not change its price. Correcting for anticipation effects, we show that there was an approximately 14 percentage point decrease in the share of men choosing to annuitize their savings.