Unintended Consequences of Minimum Annuity Laws : An Experimental Study

The need to ensure that people have adequate savings for retirement has prompted debate among regulators and academics. Certain countries have implemented or are considering implementing mandatory minimum annuity laws (e.g., Singapore and Israel), whereas others have repealed or are considering repealing such legislation (e.g., the U.K.). We investigate the introduction as well as the repeal of a regulatory change; “mandatory minimum annuity rules” using a laboratory experiment and two surveys. Demand for annuities vs. a lump sum is sensitive to the mandatory-minimum mechanism and consistent with anchoring to the signal reflected in the requirement. Our results indicate that imposing a mandatory minimum may have unintended consequences: such laws may fail to provide an increase in the demand for annuities and may even reduce it. The outcome is sensitive to the relation between the level of the mandatory minimum and anticipated consumption (i.e., future financial need). Furthermore, the repeal of mandatory minimum annuity laws may not restore the demand for annuities to the pre-law level