Interaction between determinants of payment speed: high-low, lump sum, fixed decrease and effective date
In the Netherlands, there are numerous options for accelerating the accrual of build-up pension assets. For example, in the second pension pillar there is the possibility to expedite the start date of the pension. It is also possible to increase the payment speed by means of a so-called high-low construction. Furthermore, the Rutte III Cabinet has expressed the intention to investigate whether and how it is possible to take up a limited part of the accrued pension capital at once at retirement (lump sum).
In addition, in the third pillar, the payment speed can be influenced by the choice of the fixed decrease for variable annuities. We want to further elaborate on the concept of conditional freedom of choice: people are free to adjust the payment speed as long as the pension benefit (or replacement ratio) does not fall below a certain level. This project takes an integral income and capital concept as a starting point. Both income from the first, second, third and fourth pension pillars (for example, income arising from home ownership) play a role in the desired degree of freedom of choice. More specifically, we want to quantify the possible implications of freedom of choice on the income flow after retirement for different standard individuals – whereby we distinguish the individuals based on, among other things, earned income, work history, degree of time inconsistency (present bias) and expected death date. Finally, we investigate the potential consequences of freedom of choice for the supplements to be received and taxes to be paid.