How to Increase the Demand for Annuity in Hong Kong: A Study of Middle-Aged Adults

  • LEE, Siu Yau 李肇祐 (CoI)
  • CHOU, Kee Lee (PI)
  • CHAN, Wai-Sum (CoI)
  • Joachim, Inkmann (CoI)
  • Hans, van Kippersluis (CoI)
  • Jin, Yan (CoI)

    Project: Research project

    Project Details

    Description

    Life annuities are financial contracts in which consumers exchange a lump sum of money for a continuous stream of monthly payments until they pass away. In the absence of annuities, retirees confront two competing risks as they allocate accumulated assets in the Mandatory Provident Fund (MPF) scheme. On the one hand, those who aggressively spend augment the chance of exhausting their financial resources before they die and relying entirely on other sources of income such as welfare or support from adult children. On the other hand, those who conservatively consume the risk of dying with ample assets that they could have spent to enhance their standard of living while alive, although their inheritors may receive the bequests they leave behind after they died. Life annuities solve the consumption problem in retirement by insuring individuals against the risk of depleting all of their assets before they die. Moreover, actuarially fair annuities have higher returns than other equally risky assets even though there will be no asset leave behind at death. As a result, according to simple theoretical models, the majority of risk-averse retirees should annuitize all of their MPF assets if they do not have a bequest motive. However, similar to other countries, the participation rate of annuities is extremely low in Hong Kong. As with the MPF scheme, a define-contribution scheme, becomes more and more mature, and it is very important to identify the reasons underlying this phenomenon and encourage more retirees to consider this option. In this proposed study, we will conduct one choice experiment of 500 middle-aged workers and a survey of 1,067 middle-aged workers. In the first choice experiment, we will find out the most desirable annuity product in terms of three attributes of an annuity (percentage of annual income increase, intra-year bonus payment, period-certain guarantee) and the financial strength of annuity providers. The objective of the second survey is to identify the consumer characteristics which are significantly associated with the demand for the most desirable annuity product. Current and anticipated financial wealth, bequest motive, other anticipated uses of assets, health status, anticipated receipt of tax-funded welfare benefits, other sources of income from other retirement income protection schemes and support from adult children, risk and loss aversion, financial knowledge, participation of stock market, and perceived life expectancy will be evaluated as consumer characteristics in this observational survey.
    StatusFinished
    Effective start/end date01/01/1531/03/16