Flat annuities or flexible pension schemes: the influence of expected expenses and (dis)trust in pension funds

This paper studies the influence of people’s expectations about expenses during retirement and trust in their pension fund on their preferences for different pension arrangements. We find that although most workers prefer a flat annuity pension, many workers want to deviate from it. Most popular is a high-low annuity based profile, followed by a partial lump sum payment. One of the underlying reasons to prefer a more flexible pattern is expected expenditures. Our regressions reveal that workers who expect declining expenses during retirement are more likely to opt for a high-low annuity based pension or a lump sum payment at retirement than workers who expect stable expenses. Furthermore, we find that workers and pensioners who do not trust their pension fund are more likely to prefer a lump sum over annuity based arrangements than consumers with a high degree of trust.