Can Mandatory Minimum Annuity Laws Have Unintended Consequences? – An Experimental Investigation

Can Mandatory Minimum Annuity Laws Have Unintended Consequences? – An Experimental Investigation

7 July, 2020  •  

The need to ensure that people have adequate savings for retirement has prompted debate among regulators and academics. Certain countries have implemented or are considering implementing mandatory minimum annuity laws (e.g., Singapore and Israel), whereas others have repealed or are considering repealing such legislation (e.g., the U.K.). We investigated the introduction and repeal of mandatory minimum annuity laws using a laboratory experiment and two surveys (of students and a representative sample of the age-relevant population). Demand for annuities (vs. a lump sum) was sensitive to the mandatory-minimum mechanism and consistent with anchoring to the signal reflected in the requirement. Our result indicates that imposing a mandatory minimum may have unintended consequences in the sense that does not guarantee an increase in the demand for annuities and may even reduce it. The outcome was sensitive to the relation between the level of the mandatory minimum and anticipated consumption (i.e., future financial need). Furthermore, the repeal of mandatory minimum annuity laws does not necessarily restore the demand for annuities to the level before implementation of the constraint.

Similar Articles
Consumers’ credit card repayment decisions: The role of higher anchors and future repayment concern
We investigated two aspects of credit card repayment decisions: the extent to which the anchoring effect of minimum repayment information may be mi...
Participation and investment decisions in a retirement plan: the influence of colleagues’ choices
This paper investigates whether peer effects play an important role in retirement savings decisions. We use individual data from employees of a lar...
The ABCs of Financial Literacy–Experimental Evidence on Attitudes, Behavior and Cognitive Biases
This paper uses a large-scale field experiment in India to study attitudinal, behavioural, and cognitive constraints that stymie the link between f...