Subjective Life Expectancy and Private Pensions

One important parameter in the decision process when buying a private annuity is individuals' subjective life expectancy, because it directly influences the expected rate of return. We examine the market for private annuities in Germany and evaluate potential selection e ffects based on subjective life expectancy. First individuals are pessimistic about their life span compared to the official life tables. Second we find a significant selection e ffect based on subjective life expectancy for women who invest in private annuity contracts - so-called Riester pensions. For men there seems to be no diff erence in subjective life expectancy by Riester ownership. Comparing the size of this selection eff ect with the underlying loading inlife expectancy charged by the insurance industry shows that the latter appears to be in line for women but very high for men. Our fi ndings have strong policy implications. On the one hand misperceptions about longevity risk might preventindividuals from providing sufficiently for retirement. On the other hand mandated unisex tari ffs might especially discourage men from investing in Riester pensions, for them premiums in life expectancy are particularly high compared to subjectiveexpectations.     «

One important parameter in the decision process when buying a private annuity is individuals' subjective life expectancy, because it directly influences the expected rate of return. We examine the market for private annuities in Germany and evaluate potential selection e ffects based on subjective life expectancy. First individuals are pessimistic about their life span compared to the official life tables. Second we find a significant selection e ffect based on subjective life expectancy for wom...     »