2015
DOI: 10.1017/s1474747215000256
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Annuity choices and income drawdown: evidence from the decumulation phase of defined contribution pensions in England

Abstract: We provide new empirical evidence on the importance of defined contribution pension wealth in England, and the nature of annuitization decisions taken by older adults who retire with such sources of wealth. Other things equal, financial literacy, and numeracy in particular, are important factors governing individuals’ choices over whether to shop around for an annuity as opposed to taking the ‘path of least resistance’ option and purchasing from their original pension fund provider. This has important policy a… Show more

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Cited by 32 publications
(24 citation statements)
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References 23 publications
(28 reference statements)
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“…Withdrawal of large lump sums at one time can also have nontrivial tax implications that consumers need to know and correctly take into account in their financial planning (West, ). Our results show that lump‐sum takers tended to have higher pension freedom‐related knowledge, confirming earlier findings about the significant role of financial literacy for navigating the complex annuity‐related financial decisions late in life (Banks, Crawford, & Tetlow, ). This finding further suggests that lump‐sum takers gathered information about financial consequences of taking advantage of the Pension Freedom regulation rather than making this decision impulsively.…”
Section: Discussionsupporting
confidence: 89%
“…Withdrawal of large lump sums at one time can also have nontrivial tax implications that consumers need to know and correctly take into account in their financial planning (West, ). Our results show that lump‐sum takers tended to have higher pension freedom‐related knowledge, confirming earlier findings about the significant role of financial literacy for navigating the complex annuity‐related financial decisions late in life (Banks, Crawford, & Tetlow, ). This finding further suggests that lump‐sum takers gathered information about financial consequences of taking advantage of the Pension Freedom regulation rather than making this decision impulsively.…”
Section: Discussionsupporting
confidence: 89%
“…() (for the main sample) and Hagen () do not find dependencies between the bequest motive and annuitization rates, whereas Banks et al. () observe a positive correlation. Even though the scarce experimental research supports the findings from theoretical analyses, theoretical models do not yet seem to be able to properly account for the empirically observed bequest motive.…”
Section: Three Aspects Of Annuitization Decisionsmentioning
confidence: 84%
“…Other sources of retirement income and preannuitized wealth, in the form of social security benefits, private annuities or DB plans, have mostly been shown to have a strictly negative impact on the demand for private annuities, which can be explained by the fact that statutory pensions are often seen as substitutes for private annuities. Some articles, however, observe a positive dependency between this factor and annuitization, and argue that this effect can be caused, for example, by high loadings in private annuity markets (Pang and Warshawsky, ), by a high minimum consumption floor provided by the government (Pashchenko, ), or by a possibly unobserved heterogeneity of the sample (Banks et al., ). Finally, Guillemette et al.…”
Section: Three Aspects Of Annuitization Decisionsmentioning
confidence: 99%
“…For example, Shen et al (2016) document for Taiwan that individuals with higher levels of financial literacy are less likely to engage in financial disputes. Banks et al (2015) find for the U.K. that financial literacy and numeracy are significantly positively related to individuals' propensity to shop around for an annuity when receiving funds from their defined contribution pensions. In an early contribution to the literature, Hilgert et al (2003) find a strong correlation between financial sophistication and day-to-day financial management skills such as cash-flow and credit management.…”
Section: Additional Evidencementioning
confidence: 89%