Preferences for deferred annuities in the Japanese retirement market

Abstract

Purpose Deferred annuities, which offer longevity insurance with relatively low premiums, are a potential payout option in defined contribution (DC) pension plans in Japan. This study aims to measure individual preferences for these annuities. Design/methodology/approach This study conducts stated choice experiments using an original internet survey. This methodology provides a decision-making scenario similar to that faced by individuals when making real retirement saving decisions. Subjective valuations of deferred, immediate and term annuities are compared. Findings This study finds that male individuals have an insignificant preference for deferred annuities – the benefits of which begin at an advanced age. On average, deferred annuities are considered a gamble, betting against life and individuals who are married and have higher financial assets tend to value them less. Originality/value While previous studies, based on theory and simulations, have found that deferred annuities should be included in individual retirement assets, this study examines annuity preferences from the demand side (i.e. DC plan participants) –an approach that has not been addressed in the literature.