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Empirical Study on the Payout Choices of Tax-Qualified Individual Annuities in Korea

  • Journal of Insurance and Finance
  • 2013, 24(2), pp.37-69
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management

Lee Kyonghee 1

1상명대학교

Accredited

ABSTRACT

We analyze the payout choices (lump sum, annuity certain, life annuity, waiting) and determinants of annuitization in tax-qualified individual deferred annuities sold from June 1994 to December 2000 in Korea. Of the 8,402 individual annuities reaching maturity between 2008and 2011, 78.9 percent elected life annuity, 6.0 percent elected annuity certain, 4.9% percent chose lump-sum withdrawal, and the remaining 10.1 percent chose waiting. Three factors explain the high annuitization rate in the sample data: the role of public pensions and occupational pensions in the provision of old age income, behavioral factors (tax incentives and default options in the payout phase), and the price of life annuities. Among these factors, price is assumed to be a major factor. Our results from the empirical analysis show that for a female, a guarantee of the reinvestment risk increases the probability that the policyholder will choose a life annuity compared to lump-sum withdrawal. Also, an increase in accumulated assets makes it more likely an individual will choose a life annuity over the lump-sum.

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