Indulgence, Self-Control, and Annuity Preferences: Annuity Choices by Members of the Slovak-Funded Private Pension Pillar
1.1. Annuity Research Goes Behavioural
1.2. Literature Review
1.2.1. Framing, Loss Aversion, and Endowment Effect
1.2.2. Mental Accounting
1.2.3. Survival Estimates and Mortality Salience
1.2.4. Indulgence and Self-Control
1.2.5. Regret Aversion
1.3. Research Gap
1.4. Research Hypotheses
2. Materials and Methods
2.1. Descriptive Statistics
- Guarantee of savings: (1–3): 9.2%; (4–5): 90.8%;
- Guarantee of products: (1–3): 52.2%; (4–5): 47.8%.
3.1. Factor Analysis
- Factor 1: ‘indulgence’ explained 20.84% of the total variance and loaded on hedonistic pursuits, inappropriate behaviour, and laziness.
- Factor 2: ‘focus and determination’ loaded on the pursuance of long-term goals and high self-discipline and explained 13.16% of the total variance.
- Factor 3: ‘low self-control’ combined three items on problems with concentration, the persistence of bad habits, and limited self-discipline, and explained 11.48% of the total variance.
- Factor 4: ‘temptation resistance’ consisted of two items on the management of self-harming behaviours and self-discipline and explained 10.02% of the total variance.
3.2. Binary Logistic Regression: Observable Variables
3.3. Binary Logistic Regression: Behavioural Variables
3.3.1. Saving Preferences: Framing and Mental Accounting
3.3.2. Spending Behaviours
3.3.3. Indulgence and Self-Control
4. Discussion, Conclusions, Limitations, and Direction for Further Research
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
Appendix A. Questionnaire
- I would cash out and pay the tax;
- I would buy a tax-free lifetime annuity.
- I would set apart … per cent of the lump sum for savings.
- I would set apart … per cent of the lump sum for family & children.
- I would set apart … per cent of the lump sum for housing & durables.
- I would set apart … per cent of the lump sum for current expenses & paying debts.
- I would set apart … per cent of the lump sum for hobbies & holidays.
- I set apart … per cent of my net monthly income.
- I would spend … years in retirement.
- from one or two months to one year;
- from one to two years;
- more than two years.
- only once;
- more than once.
- one or more times.
- the state should always help people in material deprivation;
- self-help and/or family;
- no cash-outs should be allowed.
- about the same;
- I do not know.
- I am good at resisting temptation.
- I have a hard time breaking bad habits.
- I am lazy.
- I say inappropriate things.
- I do certain things that are bad for me, if they are fun.
- I refuse things that are bad for me.
- I wish I had more self-discipline.
- People would say that I have iron self- discipline.
- Pleasure and fun sometimes keep me from getting work done.
- I have trouble concentrating.
- I am able to work effectively toward long-term goals.
- Sometimes I can’t stop myself from doing something, even if I know it is wrong.
- I often act without thinking through all the alternatives.
Note: specific values of pensions and lump sums reflected income levels stated by individual participants.
We computed the difference between estimated individual and actual average life expectations for each participant and examined the effects of potential mis-calibration upon annuitisation decisions. The variable proved to be collinear with estimated life expectancy and was omitted from the regression.
The total contribution rate for the old-age pension was 18% of the gross wage in Slovakia. Members of Pillar 2 divided their contribution between Social Security (9%) and private pension funds (9%) in the period 2005–2012. The Slovak Government considered the fiscal burden and changed the ratio to 14% versus 4% in 2012–2016. The overall percentage of pension contributions (18%) remained unchanged, but the ratio between Social Security and private pension contributions changed from 13.75% vs. 4.25% in 2017 to 12.50% vs. 5.50% in 2022.
See note 1 above.
The same question was asked again for a potential income from a life insurance policy.
- Achtziger, Anja, Marco Hubert, Peter Kenning, Gerhard Raab, and Lucia Reisch. 2015. Debt out of control: The links between self-control, compulsive buying, and real debts. Journal of Economic Psychology 49: 141–49. [Google Scholar] [CrossRef][Green Version]
- Alexandrova, Maria, and Nadine Gatzert. 2019. What do we know about annuitisation decisions? Risk Management and Insurance Review 22: 57–100. [Google Scholar] [CrossRef][Green Version]
- Ameriks, John, Andrew Caplin, John Leahy, and Tom Tyler. 2007. Measuring self-control problems. American Economic Review 97: 966–72. [Google Scholar] [CrossRef][Green Version]
- André, Eric, Antoine Bommier, and Francois Le Grand. 2022. The impact of risk aversion and ambiguity aversion on annuity and saving choices. Journal of Risk and Uncertainty 65: 33–56. [Google Scholar] [CrossRef]
- Banks, James, Rowena Crawford, and Gemma Tetlow. 2015. Annuity choices and income drawdown: Evidence from the decumulation phase of defined contribution pensions in England. Journal of Pension Economics & Finance 14: 412–38. [Google Scholar]
- Bateman, Hazel, Christine Eckert, Fedor Iskhakov, Jordan Louviere, Stephen Satchell, and Susan Thorp. 2017. Default and naive diversification heuristics in annuity choice. Australian Journal of Management 42: 32–57. [Google Scholar] [CrossRef]
- Baumeister, Roy F. 2002. Yielding to temptation: Self-control failure, impulsive purchasing, and consumer behavior. Journal of Consumer Research 28: 670–76. [Google Scholar] [CrossRef][Green Version]
- Benartzi, Shlomo, Alessandro Previtero, and Richard H. Thaler. 2011. Annuitisation puzzles. Journal of Economic Perspectives 25: 143–64. [Google Scholar] [CrossRef]
- Berkman, Elliot T., Cendri A. Hutcherson, Jordan L. Livingston, Lauren E. Kahn, and Michael Inzlicht. 2017. Self-control as value-based choice. Current Directions in Psychological Science 26: 422–28. [Google Scholar] [CrossRef]
- Bernecker, Kathrina, and Daniela Becker. 2021. Beyond self-control: Mechanisms of hedonic goal pursuit and its relevance for well-being. Personality and Social Psychology Bulletin 47: 627–42. [Google Scholar] [CrossRef]
- Bockweg, Christian, Eduard Ponds, Onno Steenbeek, and Joyce Vonken. 2018. Framing and the annuitisation decision–Experimental evidence from a Dutch pension fund. Journal of Pension Economics & Finance 17: 385–417. [Google Scholar]
- Boyer, M. Martin, Sébastien Box-Couillard, and Pierre-Carl Michaud. 2020. Demand for annuities: Price sensitivity, risk perceptions, and knowledge. Journal of Economic Behavior & Organization 180: 883–902. [Google Scholar]
- Brown, Jeffrey R. 2001. Private pensions, mortality risk, and the decision to annuitize. Journal of Public Economics 82: 29–62. [Google Scholar] [CrossRef][Green Version]
- Brown, Jeffrey R., Marcus D. Casey, and Olivia S. Mitchell. 2008a. Who Values the Social Security Annuity?: New Evidence on the Annuity Puzzle. Cambridge: National Bureau of Economic Research. [Google Scholar]
- Brown, Jeffrey R., Jeffrey R. Kling, Sendhil Mullainathan, and Marian V. Wrobel. 2008b. Why don’t people insure late-life consumption? A framing explanation of the under-annuitization puzzle. American Economic Review 98: 304–9. [Google Scholar] [CrossRef][Green Version]
- Brown, Jeffrey R., Arie Kapteyn, Erzo F.P. Luttmer, and Olivia S. Mitchell. 2017. Cognitive constraints on valuing annuities. Journal of the European Economic Association 15: 429–62. [Google Scholar] [CrossRef]
- Bütler, Monika, and Federica Teppa. 2007. The choice between an annuity and a lump sum: Results from Swiss pension funds. Journal of Public Economics 91: 1944–66. [Google Scholar] [CrossRef][Green Version]
- Cappelletti, Giuseppe, Giovanni Guazzarotti, and Pietro Tommasino. 2013. What determines annuity demand at retirement? The Geneva Papers on Risk and Insurance-Issues and Practice 38: 777–802. [Google Scholar] [CrossRef][Green Version]
- Duckworth, Angela L., Katherine L. Milkman, and David Laibson. 2018. Beyond willpower: Strategies for reducing failures of self-control. Psychological Science in the Public Interest 19: 102–29. [Google Scholar] [CrossRef][Green Version]
- Fisher, Sharon, John Gould, and Tim Haughton. 2007. Slovakia’s neoliberal turn. Europe-Asia Studies 59: 977–98. [Google Scholar] [CrossRef]
- Fudenberg, Drew, and David K. Levine. 2006. A dual-self model of impulse control. The American Economic Review 96: 1449–76. [Google Scholar] [CrossRef][Green Version]
- Gathergood, John. 2012. Self-control, financial literacy and consumer over-indebtedness. Journal of Economic Psychology 33: 590–602. [Google Scholar] [CrossRef][Green Version]
- Gazzale, Robert S., and Lina Walker. 2009. Behavioral Biases in Annuity Choice: An Experiment. Williams College Economics Department Working Paper Series; Toronto: University of Toronto. [Google Scholar]
- Goedde-Menke, Michael, Moritz Lehmensiek-Starke, and Sven Nolte. 2014. An Empirical Test of Competing Hypotheses for the Annuity Puzzle. Journal of Economic Psychology 43: 75–91. [Google Scholar] [CrossRef]
- Greenberg, Jeff, Sheldon Solomon, and Tom Pyszczynski. 1997. Terror management theory of self-esteem and cultural worldviews: Empirical assessments and conceptual refinements. Advances in Experimental Social Psychology 30: 61–139. [Google Scholar]
- Guillemette, Michael A., Terrance K. Martin Jr., Benjamin F. Cummings, and Russel N. James. 2016. Determinants of the stated probability of purchase for longevity insurance. The Geneva Papers on Risk and Insurance-Issues and Practice 41: 4–23. [Google Scholar] [CrossRef]
- Hagen, Johannes. 2015. The determinants of annuitisation: Evidence from Sweden. International Tax and Public Finance 22: 549–78. [Google Scholar] [CrossRef][Green Version]
- Hagen, Johannes. 2022. Partial recall: Differences between actual and self-reported annuitization decisions in Sweden. Journal of Pension Economics & Finance 21: 375–404. [Google Scholar]
- Hu, Wei-Yin, and Jason S. Scott. 2007. Behavioral obstacles in the annuity market. Financial Analysts Journal 63: 71–82. [Google Scholar] [CrossRef][Green Version]
- Hurd, Michael, and Constantijn Panis. 2006. The choice to cash out pension rights at job change or retirement. Journal of Public Economics 90: 2213–27. [Google Scholar] [CrossRef]
- Inkmann, Joachim, Paula Lopes, and Alexander Michaelides. 2011. How deep is the annuity market participation puzzle? The Review of Financial Studies 24: 279–319. [Google Scholar] [CrossRef]
- Kotlikoff, Laurence J., and Avia Spivak. 1981. The family as an incomplete annuities market. Journal of Political Economy 89: 372–91. [Google Scholar] [CrossRef][Green Version]
- Laibson, David. 1997. Golden Eggs and Hyperbolic Discounting. The Quarterly Journal of Economics 112: 443–77. [Google Scholar] [CrossRef][Green Version]
- Lambregts, Timo R., and Frederik T. Schut. 2020. Displaced, disliked and misunderstood: A systematic review of the reasons for low uptake of long-term care insurance and life annuities. The Journal of the Economics of Ageing 17: 100236. [Google Scholar] [CrossRef]
- MLSAF (Ministry of Labor, Social Affairs and Family). 2023. MLSAF, Ministry of Labour, Social Affairs and Family. (2022). II. pilier v číslach (Pillar 2 in Numbers). Available online: https://www.employment.gov.sk/sk/socialne-poistenie-dochodkovy-system/dochodkovy-system/ii-pilier-starobne-dochodkove-sporenie/zhodnotenie-majetku/ (accessed on 16 March 2023).
- O’Dea, Cormac, and David Sturrock. 2023. Survival pessimism and the demand for annuities. The Review of Economics and Statistics 105: 442–57. [Google Scholar] [CrossRef]
- Olsen, Robert A. 2007. Investors’ Predisposition for Annuities: A Psychological Perspective. Journal of Financial Service Professionals 61: 51–57. [Google Scholar]
- Payne, John W., Namika Sagara, Suzzane B. Shu, Kritin C. Appelt, and Eric J. Johnson. 2013. Life expectancy as a constructed belief: Evidence of a live-to or die-by framing effect. Journal of Risk and Uncertainty 46: 27–50. [Google Scholar] [CrossRef]
- Ramsay, Colin M., and Victor I. Oguledo. 2018. The annuity puzzle and an outline of its solution. North American Actuarial Journal 22: 623–45. [Google Scholar] [CrossRef]
- Robinson, Jenny, and David A. Comerford. 2020. The effect on annuities preference of prompts to consider life expectancy: Evidence from a UK quota sample. Economica 87: 747–62. [Google Scholar] [CrossRef]
- Salisbury, Linda C., and Gergana Y. Nenkov. 2016. Solving the annuity puzzle: The role of mortality salience in retirement savings decumulation decisions. Journal of Consumer Psychology 26: 417–25. [Google Scholar] [CrossRef]
- Schreiber, Phillipp, and Martin Weber. 2016. Time inconsistent preferences and the annuitisation decision. Journal of Economic Behavior & Organization 129: 37–55. [Google Scholar]
- Shu, Suzanne B., Robert Zeithammer, and John W. Payne. 2016. Consumer preferences for annuity attributes: Beyond net present value. Journal of Marketing Research 53: 240–62. [Google Scholar] [CrossRef][Green Version]
- SOSR (Statistical Office of the Slovak Republic). 2022. Structure of Earnings in the Slovak Republic in 2021. Bratislava: SOSR. [Google Scholar]
- Strömbäck, Camila, Thérèse Lind, Kenny Skagerlund, Daniel Västfjäll, and Gustav Tinghög. 2017. Does self-control predict financial behavior and financial well-being? Journal of Behavioral and Experimental Finance 14: 30–38. [Google Scholar] [CrossRef]
- Tangney, June, Roy F. Baumeister, and Angie Boone. 2004. High Self-Control Predicts Good Adjustment, Less Pathology, Better Grades, and Interpersonal Success. Journal of Personality 72: 271–324. [Google Scholar] [CrossRef] [PubMed]
- Teppa, Fedrica. 2011. Can the Longevity Risk Alleviate the Annuitisation Puzzle? Empirical Evidence from Dutch Data. No. DP 09/2011-075, The Netherlands Netspar Discussion Paper Series; Le Tillburg: ECINEQ. [Google Scholar]
- Thaler, Richard H. 1999. Mental accounting matters. Journal of Behavioral Decision Making 12: 183–206. [Google Scholar] [CrossRef]
- Tversky, Amos, and Daniel Kahneman. 1992. Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty 5: 297–323. [Google Scholar] [CrossRef]
- Zeelenberg, Marcel. 2018. Anticipated regret. In The Psychology of Thinking about the Future: A Prospective Emotion about the Future Past. Edited by Gabriele Oettingen, A. Timur Sevincer and Peter M. Gollwitzer. New York: The Guilford Press, chp. 14. pp. 276–95. [Google Scholar]
|Family status||Frequency||Valid percentage|
|Basic and lower middle||173||27.59|
|Town size||Frequency||Valid percentage|
|Up to 5000||252||40.2|
|100,001+ (Bratislava and Košice cities)||79||12.6|
|Monthly income per family member||Frequency||Valid percentage|
|Up to €200||53||8.75|
|Estimated years in retirement||15.96||15.00||6.80|
|Difference between estimated years and life expectancy||−0.73||−0.69||7.48|
|Monthly savings for retirement (% of net income)||8.30||7.50||8.43|
|Lump sum allocation (%)|
|Savings for retirement||34.24||30.00||27.25|
|Current expenses and debts||15.35||10.00||15.67|
|Family and children||20.62||20.00||20.22|
|Housing and durables||16.99||15.00||15.36|
|Hobbies and holidays||12.80||10.00||12.10|
|Life insurance policy allocations (%)|
|Savings for retirement||32.81||30.00||23.38|
|Current expenses and debts||13.74||10.00||13.38|
|Family and children||23.13||20.00||18.85|
|Housing and durables||17.40||15.00||14.05|
|Hobbies and holidays||12.92||10.00||10.97|
|Gender (1) male||−0.076||0.123||0.726||0.927|
|Education (1) higher middle||0.470||3.692||0.055||1.600|
|Education (2) tertiary||0.434||2.183||0.140||1.543|
|Family status (1) married/with partner||0.986||10.514||0.001||2.680|
|Lump sum allocation, retirement savings (%)||0.010||5.718||0.017||1.010|
|Lump sum allocation, current expenses and debts (%)||−0.010||1.938||0.164||0.990|
|Estimated years spent in retirement||0.007||0.235||0.628||1.007|
|Constitutional law on savings (1) agree||0.141||0.150||0.698||1.152|
|Constitutional law on insurance (1) agree||0.487||4.958||0.026||1.627|
|Purchased useless thing||10.255||0.006|
|(2) more than once||0.140||0.322||0.570||1.150|
|Financial planning horizon (1) over two months||0.245||1.208||0.272||1.277|
|Actual savings for retirement (% of net income)||0.010||0.546||0.460||1.010|
|Non-bank loan for extraordinary expenses (1) yes||−0.718||6.321||0.012||0.487|
|Assistance for reckless savers||9.383||0.025|
|(1) self-help and/or family||−0.078||0.079||0.778||0.925|
|(3) no cash-outs allowed||0.762||5.299||0.021||2.143|
|Annuity literacy (1) correct||−0.198||0.900||0.343||0.821|
|Factor 1: indulgence||−0.197||3.518||0.061||0.822|
|Factor 2: focus and determination||−0.010||0.008||0.929||0.990|
|Factor 3: low self-control||0.175||2.815||0.093||1.191|
|Factor 4: resisting temptation||0.037||0.125||0.724||1.037|
Disclaimer/Publisher’s Note: The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of MDPI and/or the editor(s). MDPI and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.
© 2023 by the author. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).
Baláž, V. Indulgence, Self-Control, and Annuity Preferences: Annuity Choices by Members of the Slovak-Funded Private Pension Pillar. Soc. Sci. 2023, 12, 190. https://doi.org/10.3390/socsci12030190
Baláž V. Indulgence, Self-Control, and Annuity Preferences: Annuity Choices by Members of the Slovak-Funded Private Pension Pillar. Social Sciences. 2023; 12(3):190. https://doi.org/10.3390/socsci12030190Chicago/Turabian Style
Baláž, Vladimír. 2023. "Indulgence, Self-Control, and Annuity Preferences: Annuity Choices by Members of the Slovak-Funded Private Pension Pillar" Social Sciences 12, no. 3: 190. https://doi.org/10.3390/socsci12030190