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 thepotential demand for such a product? We first conduct a discrete choice experimentamong participants of a large-scale occupational defined contribution pension scheme inHong Kong to identify desired product characteristics of an annuity. The preferred annuityis sold by an A-rated insurance company, provides nominal annuity payouts and a 10-yearperiod-certain guarantee. Using a second survey, we then analyze the demand for thepreferred annuity. Close to one third of respondents chooses to annuitize, a fraction thatconsiderably exceeds observed annuitization rates in developed markets. Regardinghousehold characteristics, we find that annuity demand decreases with general financialliteracy but increases with specific knowledge about the annuity product. Remarkably, aself-reported bequest motive increases the demand for an annuity providing a 10-yearperiod-certain guarante