Analysis of payout choice from individual deferred annuities in Korea

Abstract

AbstractWe analyse annuitization rates by policyholders with individual deferred annuities in Korea to assess the impact of different tax policies on payout decisions between 2008 and 2011. Under the Korean tax system, two types of individual deferred annuities were sold: qualified (taxed for lump sums) and non-qualified (tax free for lump sums). Our results show that policyholders with qualified contracts are more likely to select a life annuity option than a lump-sum distribution, compared to policyholders of non-qualified contracts. This suggests that policyholders are more likely to use non-qualified contracts as savings vehicles than as longevity insurance.