Speaker: Jun-Hee An, Tilburg University
Title: Welfare Effects of Uniform Variable Annuities for Individuals with Different Educational Levels (Jun-Hee An, Anja De Waegenaere, and Theo Nijman)
Abstract: This paper examines the welfare losses or gains that individuals with different educational levels face when they are offered a variable annuity that is not tailored to their risk preferences and/or survival rates. We combine education-specific mortality projections of the Dutch population with a range of reasonable risk preferences to quantify the welfare losses due to mismatches in mortality rates and risk preferences. We find that for individuals with lower education levels, the welfare losses due to inadequate mortality assumptions can be substantially bigger than the welfare losses they face from an inadequate risk preference assumption. More generally, we find that ignoring the effects of heterogeneity in mortality rates can lead to a large over- or underestimation of the welfare effects of uniform variable annuities. Our study therefore highlights the importance of considering differences in survival rates when evaluating the welfare effects of uniform annuities offered to annuitants with different educational levels.