Assessing the Demand for Annuities in an Undeveloped Market: Evidence from Hong Kong

How to design an attractive annuity for an undeveloped market and how to assess the potential demand for such a product? We first conduct a discrete choice experiment among participants of a large-scale occupational defined contribution pension scheme in Hong Kong to identify desired product characteristics of an annuity. The preferred annuity is sold by an A-rated insurance company, provides nominal annuity payouts and a 10-year period-certain guarantee. Using a second survey, we then analyze the demand for the preferred annuity. Close to one third of respondents chooses to annuitize, a fraction that considerably exceeds observed annuitization rates in developed markets. Regarding household characteristics, we find that annuity demand decreases with general financial literacy but increases with specific knowledge about the annuity product. Remarkably, a self-reported bequest motive increases the demand for an annuity providing a 10-year period-certain guarantee.