Enhanced Annuities Drivers and Barriers of Supply and Demand

Enhanced annuities pay higher pensions than standard annuities in case of a reduced life expectancy and are very prominent in the U.K. insurance market but not in other markets. The aim of thispaperistostudydriversofandbarrierstosupplyanddemandofenhancedannuitiesaswellas potential market implications of their introduction, including implications for the standard immediate and deferred annuity markets, annuitisation rates and the so-called cannibalisation effect, which may arise within the portfolio of standard annuities because of the enhanced annuity offering. The analysis is based on a comprehensive literature review and an empirical survey in the German life insurance market, which is also intended to offer insight for other industrialised countries with a similar situation in regard to the demographic development and an increasing need for private pensions.