Poster Paper:
How Do Hong Kong Middle-Aged Adults Value Life Annuities ?
Tuesday, June 14, 2016
Clement House, Ground Floor, Hong Kong Theatre (London School of Economics)
*Names in bold indicate Presenter
The Mandatory Provident Fund (MPF) scheme, which has been implemented in Hong Kong since December 2000, is a mandatory, defined-contributed, privately-managed, employment-based and fully-funded scheme which is the major pillar of Hong Kong retirement income protection system. In the absence of annuities, retirees confront longevity and investment risks, as they receive the lump-sum of their accumulated assets in the MPF. Although annuity is a feasible solution, the participation rate of annuities is extremely low in Hong Kong. In the first phase of the current study, based on a Discrete Choice Experiment of 500 middle-aged full-workers who are MPF enrollees, we found the most popular design of annuity is one a ten-year guarantee period, a fixed annual income, and the product provider with A rating but respondents did not care much whether an annuity offered double pay. In the second phase of the study, we presented this product to 1,066 middle-aged full-workers with MPF account. We found that 32.4% of them were willing to purchase this annuity if they had accumulated a million in their MPF account when they were 65 years old. The four major reasons why they did not purchase this product included: 1) they had other financial arrangements (33.45); 2) they believe that self-management of their fund could yield a higher return (31.9%); 3) they did not understand the annuity (29.1%), and 4) they do not trust the product providers. Logistic regression analyses revealed that bequest motive, anticipated health care service expenditure in retirement, anticipated expenditure for funeral arrangement, purchase of long-term care insurance, chance of receiving welfare in retirement, anticipated financial support from adult children, financial knowledge, understanding of annuity and household income were significantly associated with the demand for the annuity product in question. We then discuss the policy implications of our findings.
