The effects of freedom of choice regarding pension payouts

Pensions in the Netherlands feature little flexibility. The pension scheme pays out pensions in the form of annuities and options to deviate from the standard flat profile are limited. Quite a number of participants would welcome somewhat more flexibility, however, a number of surveys have suggested. Given this result, this paper asks whether it would be possible to raise welfare of society by allowing for somewhat more flexibility. We focus more on the two effects that may be pivotal at the individual level: a better match with heterogeneous preferences and a greater risk for failures in life-cycle planning.  We calculate both types of welfare effects for a number of people that are liquidity-constrained and that differ in terms of preferred consumption profiles and risk of financial planning failures.