Uncertain Lifetime and Postretirement Investment Decision for Occupational Pension

Abstract:

Employees affiliated to occupational pension schemes have to choose between lumpsum,phased withdraw and annuitization after retirement.The recursive preference was introduced to eliminate intertemporal substitution,and an intertemporal utility function with unique uncertainty of lifetime was set up to explore the employees’ decisions without bequest motive.Results show that longevity risk and ephemerality risk have different effect: the lumpsum way and phased withdraw help to aversion to longevity risk while annuitization helps to aversion to ephemerality risk.In general,the utility of annuitization decreases and the lumpsum way is more attractive as risk aversion increases.

Key words:occupational pension; postretirement investment; recursive preference; risk aversion; uncertain lifetime