Household economics, information sources and annuity choices: Annuitisation preferences of members of the Slovak private pension pillar

Baláž, Vladimír Article Household economics, information sources and annuity choices: Annuitisation preferences of members of the Slovak private pension pillar Economies Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Baláž, Vladimír (2023) : Household economics, information sources and annuity choices: Annuitisation preferences of members of the Slovak private pension pillar, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 11, Iss. 4, pp. 1-16, https://doi.org/10.3390/economies11040123 This Version is available at: https://hdl.handle.net/10419/328748 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Citation: Baláž, Vladimír. 2023. Household Economics, Information Sources and Annuity Choices: Annuitisation Preferences of Members of the Slovak Private Pension Pillar. Economies 11: 123. https://doi.org/10.3390/ economies11040123 Academic Editor: Luigi Aldieri Received: 20 March 2023 Revised: 10 April 2023 Accepted: 11 April 2023 Published: 18 April 2023 Copyright: © 2023 by the author. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). economies Article Household Economics, Information Sources and Annuity Choices: Annuitisation Preferences of Members of the Slovak Private Pension Pillar Vladimír Baláž Institute for Forecasting, Centre of Social and Psychological Sciences, Slovak Academy of Sciences, 81105 Bratislava, Slovakia; [email protected] Abstract: This research uses representative survey data to elicit the annuitisation preferences of members of the Slovak-funded private pension pillar. The research explores the impact of socioeconomic and sociodemographic variables, as well as some exogenous factors on annuity choices. The following choices are analysed: (i) taking an annuity upon retirement; (ii) delaying the uptake of an annuity and accumulating savings beyond the official age of retirement; and (iii) leaving accumulated wealth to heirs (bequest motive). The paper provides some original contributions. Firstly, it relates annuity choices to intrafamily risk sharing. Attention is paid to household structure, income levels, and the presence of dependent children. Secondly, the importance of diverse information resources on the formation of annuity preferences is examined. We found that professional advice provided by financial institutions and government bodies was associated with higher probabilities of annuity uptake. A disproportional reliance on informal channels may explain the higher preference towards bequest motives in rural areas. Thirdly, annuity choices are studied in relation to alternative sources of income in old age. A combination of social security pensions and bequest-sharing arrangements may offset the need for the annuitisation of pension wealth. Keywords: annuities; intrafamily risk sharing; bequest motives; accumulation motives 1. Introduction: Theory and Practice of Annuity Choices The longevity risk (i.e., the chance that one would live for longer than is currently expected and outlives their savings) has significant implications for financial comfort in retirement. Propositions by the standard (neoclassical) theory assume that a risk-averse agent should disregard a potentially risky investment to a lump sum and buy an annuity (Benartzi et al. 2011, p. 151). The annuitisation of preretirement savings provides an excellent opportunity to insure one’s income against longevity risk, as it ensures a smooth income over the rest of one’s life. Nevertheless, annuitisation rates are low in developed countries (Alexandrova and Gatzert 2019). Retirees usually annuitise only a fraction of their preretirement wealth. Many people choose to keep their pension wealth untouched, continuously accumulating it, or considering passing part of their savings to their heirs. Annuities remain “displaced, disliked and misunderstood” by common consumers ( Lambregts and Schut 2020 ). The “annuity puzzle” has been the subject of intense debates among economists, sociologists and psychologists. Economic theory acknowledges a number of rational, semirational or behavioural motives for opting out of an annuity purchase (Ramsay and Oguledo 2018). The rational motives derive from sociodemographic and socioeconomic factors relevant for annuitisation decisions. Key factors include age, gender, marital status, education, bequest motives (Bütler and Teppa 2007;Lockwood 2012,2018), health reasons (Peijnenburg et al. 2017; Hagen 2015), financial literacy (Pfarr and Schneider 2013;Goedde-Menke et al. 2014; Banks et al. 2015 ), lifestyle and personal time preferences (Hagen 2022), as well as the existence of alternative sources of old-age income (Teppa 2011). Economies 2023,11, 123. https://doi.org/10.3390/economies11040123 https://www.mdpi.com/journal/economies Economies 2023,11, 123 2 of 16 This research aims at shedding some light on rational and semirational motives for accepting or opting out of an annuity purchase. It explores the impact of socioeconomic and sociodemographic variables, as well as some exogenous factors on annuity choices. The paper uses representative survey data and a multinomial logistic regression to study the annuitisation preferences of members of the Slovak private pension pillar. The fully funded, voluntary, defined-contribution, private Pillar 2 was launched in May 2005 in Slovakia. The introduction of the funded Pillar 2 was part of a wider neoliberal agenda by the Slovak government (Fisher et al. 2007, p. 983). Pillar 2 was an immediate success and transformed the Slovak pension market. Approximately 1.09 million savers (49.2% of total employment) had enrolled in Pillar 2 by the end of 2005. By the end of 2022, there were 1.74 million savers (66.4% of total employment) with assets amounting to EUR 14.67 billion (MLSAF 2023). Each member of the Pillar 2 had four basic options for how to dispose of their savings upon retirement: (i) taking an annuity upon retirement; (ii) delaying the uptake of an annuity and accumulating savings beyond the official age of retirement; (iii) leaving accumulated wealth to heirs (bequest motive); or (iv) cashing-out via programmed withdrawals. The latter option was conditional upon minimum income thresholds and available only to a subset of savers. This research focuses on the first three choices. It analyses the impact of socioeconomic and sociodemographic variables, as well as some exogenous factors on annuity choices. The paper provides some original contributions. Firstly, it relates annuity choices to intrafamily risk sharing. Attention is paid to household structure, income levels, and the presence of dependent children. Secondly, the importance of diverse information resources on the formation of annuity preferences is considered. Most previous studies have focused on information provided by financial advisors only (see Goedde-Menke et al. 2014). Furthermore, this research also explores the influence of the media, friends, family, financial institutions and government bodies. Thirdly, annuity choices are studied in relation to expected income from social security. The importance of alternative sources of old-age income is widely recognised but rarely studied in annuity choices. We found that people with dependent children were more likely to state bequest motives compared to persons with no or grown-up children. People considering expert advice were more likely to annuitise than those following the opinions of family, friends and the media. The remainder of this paper is organised as follows. The section two provides a literature review on the socioeconomic and sociodemographic correlates and behavioural determinants of annuitisation decisions. The research gap is identified, and hypotheses formulated. Section three introduces an original survey on a representative sample of the Slovak working population (N = 613). The multinomial logit regression is used to elicit preferences towards specific annuity choices in Section four. The concluding part of the paper discusses major findings, notes some important limitations, and suggests directions for further research. 2. Literature Review The literature for review was primarily identified based on searches of the Web of Science, Scopus, and Google Scholar pages for various keywords, e.g., “annuity”, “annuitisation”, “private pension”, “annuity literacy”, “annuity products”, “bequest”, and “accumulation”. First, we focus on the impact of sociodemographic and socioeconomic factors on annuitisation decisions (Table 1); then, we turn to time preferences, liquidity constraints and information sources. 2.1. Sociodemographic and Socioeconomic Factors Age: There is no agreement on the effect of age upon annuity uptake. Most studies found no or a negative effect of age. Reasons not to take annuities at a higherage may include subjective survival probabilities and shorter planning horizons for the elderly (Hurd and Panis 2006, p. 2217), health status and perceived mortality risk ( Guillemette et al. 2016, p. 5 ) Economies 2023,11, 123 3 of 16 and hyperbolic discounting (Schreiber and Weber 2016, p. 54). Potential explanations for the higher uptake of annuities with an increasing age may include greater care being paid to retirement planning (Brown et al. 2008), as well as inertia and reluctance on the part of elderly workers with regard to making active choices (Bockweg et al. 2018, p. 401). Teppa (2011) found that people expecting to live longer prefer annuities over lump sums. This finding was robust against controlling for bequest motives. Table 1. Literature review. Source Male Gender Age Married Children Education Income Wealth Bequest Model R2 N Hurd and Panis (2006) + −+ n/a + n/a + n/a Probit n/a 1243 Brown et al. (2008) 0 + 0 0 −0 0 0 OL n/a 790 Inkmann et al. (2011) + + −0 + n/a + −Probit 0.245 5233 Teppa (2011) + 0 n/a −000−Probit 0.027 799 Cappelletti et al. (2013) 0 + 0 0 + + + n/a OP 0.030 4750 Beshears et al. (2014) 0 0 + 0 0 n/a n/a n/a OLS 0.009 4052 Schreiber and Weber (2016) 0 −0−0 0 n/a n/a OLS 0.091 1113 Guillemette et al. (2016)− − 0 n/a + + 0 n/a OP n/a 5035 Bateman et al. (2017) 0 n/a + n/a + n/a 0 −BBD n/a 6884 Bockweg et al. (2018) 0 + 0 −n/a n/a + n/a OP 0.037 1651 Boyer et al. (2020) + −0 n/a 0 0 0 + OLS 0.072 15,005 Hurwitz et al. (2020) + 0 0 n/a n/a + n/a n/a Tobit 0.0046 886 Source: author. Notes: BBD = beta-binomial distribution; OP = ordered probit; OL = ordered logit. 0 = no relation; + = positive relation; −= negative relation; n/a = not available. Gender: Females, in particular, tend to account for lower wages and longer career breaks but face a higher risk of longevity. Moreover, females are more likely to accumulate a lower pension wealth in their formal employment (Bütler and Teppa 2007, p. 1961). Teppa (2011, p. 13) explained the lower annuitisation and higher cash-out rates of females via the availability of alternative sources of retirement income and insurance (husband, family). Only one study found a potential higher demand for annuities from females rather than males. Guillemette et al. (2016, p. 17) explained their finding on the stated preferences towards an annuity purchase via longer life expectancy from women. Marital status: Most studies under review found no effect of marriage upon the purchase of annuities. Brown (2001, p. 59) found that married couples accounted for a lower propensity to annuitise, presumably due to their ability to pool mortality risk. However, several studies have established a higher propensity of married couples to annuitise. Hurd and Panis (2006, p. 2222) noted that divorced, separated and widowed people have low levels of assets and therefore a higher cash-out rate (and a lower propensity to annuitise) in comparison to married couples. Bateman et al. (2017, p. 48) explained the higher interest in annuities from married couples by means of the low public pensions in Australia, which encourage private annuity purchases. Children: Relatively few studies have included the presence of children, and those that did usually did not distinguish between dependent and independent ones. Economic theory assumes that married people and people with children pool their resources and obtain longevity insurance within the family, rather than in standard annuity markets (Kotlikoff and Spivak 1981, p. 380). Furthermore, parents may consider a bequest for their outliving spouses and children. It follows that the higher the number of children, the lower the demand for annuities. Some studies (Bockweg et al. 2018, p. 401) have used children as a proxy for the bequest motive and have found a positive relation between having children and a preference for partial lump sum payments over annuities. Moreover, Economies 2023,11, 123 4 of 16 Schreiber and Weber (2016, p. 46) found that having children decreased the probability of choosing annuities and explained this result via the bequest motive. Education, income and wealth: Education, income and wealth tend to be correlated. Educated people tend to have higher levels of financial literacy and should therefore find it easier to value annuities in comparison to people with lower education (Bockweg et al. 2018, p. 416). The literature survey mostly found a positive association between education, wealth and income, on the one hand, and the demand for annuities on the other hand (Brown et al. 2008). These results are mostly reported by studies on stated preferences. The actual rates of annuitisation may differ along with income and wealth (Lambregts and Schut 2020, p. 9). Studies associating lower annuitisation rates with a lower income point to liquidity constraints by poorer households (Hurd and Panis 2006, p. 2222; Cappelletti et al. 2013, p. 799). A higher income and wealth, on the other hand, predict a higher propensity to annuitise (Hurwitz et al. 2020, p. 214). Bequest motives: Economic theory suggests that a bequest motive may increase the demand for cash-outs and decrease the uptake of annuities (Kotlikoff and Spivak 1981). However, there is no unanimous consensus on the impact of a bequest motive upon an annuity purchase. Most studies have established that bequest motives tend to increase saving and decrease purchasing annuities (Inkmann et al. 2011;Teppa 2011;Lockwood 2012,2018;Bateman et al. 2017). Other papers (Brown 2001;Brown et al. 2008), using the presence of children, as well as a will or trust, found no evidence that annuity decisions were affected by bequest motives. A survey conducted by Boyer et al. (2020) explicitly asked about bequest motives and established a positive relation between bequest motives and the purchase of annuities. Boyer et al. (2020, p. 895) suggested that an annuity was bought as an income hedge after a benefactor had set apart a portion of wealth for a bequest. An alternative explanation points to the presence of negative bequest motives (Lambregts and Schut 2020, p. 9). Individuals wishing to leave no bequest to their descendants would prefer annuities to cash-outs. Positive and negative bequest motives may cancel each other out and blur the meaning of bequest motives for annuity purchases. Accumulation motives: Alternative sources of retirement income (e.g., social security benefits, private annuities or defined benefit plans) have mostly a strictly negative impact on the demand for private annuities (Inkmann et al. 2011;Banks et al. 2015;Alexandrova and Gatzert 2019, p. 83). Rules on social security pensions may have implications for annuitisation decisions by specific socioeconomic groups. People with a high income, for example, pay higher contributions to the social security system and may feel that their oldage expenses are well covered by public pensions. Population ageing may result in a further reduction in public pensions for high earners/contributors. High-income contributors may prefer lump sums in comparison to those with lower income and contributions (Brown et al. 2008). Moreover, many social security pensions operate on solidarity principles. Those with high contributions receive comparatively lower pensions. They may consider avoiding social security contributions in order to optimise their pension wealth. Moreover, the uptake of annuities is moderated by annuitisation rules such as the flexibilisation of mandatory annuitisation or tax arrangements (Lambregts and Schut 2020, p. 11). When there is easy access to a tax-free lump sum, prospective annuitants are more likely to consider their retirement savings to be saving/investment instruments rather than longevity insurance (Lee 2016). Such people may continue to accumulate savings beyond the official age of retirement or leave their pension wealth to their descendants. 2.2. Cognitive Constraints, Framing and Information Resources Cognitive constraints may impact on the uptake of annuities. Annuities are complex financial products and there is a link between annuity knowledge and demand (Boyer et al. 2020, p. 897). The cognitive challenges related to the correct valuation of annuities are considerable (Brown et al. 2017,2021). Most individuals find it difficult to price annuities correctly (Shu et al. 2016). Economies 2023,11, 123 5 of 16 Professional financial advice may alleviate the problem of making complex financial decisions. The evidence on financial advice is inconclusive. Some studies (Pfarr and Schneider 2013, p. 88) reported a positive impact of professional financial advice upon annuity uptake, but others presented opposing evidence. Goedde-Menke et al. (2014, p. 83) highlighted the importance of specific information resources for annuity literacy, e.g., selfsearch, family, media, and independent financial advisors. An individual’s own research and annuity possession tend to have a positive impact on literacy, while advice from professional financial advisors, rather surprisingly, tends to have a negative impact. This finding may relate to the advisors’ self-interest. Ramsay and Oguledo (2018, p. 633) also noted a potential annuity negative framing and conflicts of interest amongst financial advisors. Less-sophisticated individuals may resort to simplification strategies (heuristics) to form judgements regarding annuity values and purchases. These strategies may include framing, mental accounting and/or loss aversion (Bockweg et al. 2018, p. 388). Framing may have a significant impact on decisions to buy an annuity rather than taking a lump sum (Bockweg et al. 2018). Retirement planning is often framed in terms of wealth accumulation rather than life-long insurance (Brown et al. 2017, p. 453). Given the prevalence of loss aversion, the question of whether a prospective pensioner frames their annuity purchase as a cost (i.e., loss) or as an “investment” is an important factor (Benartzi et al. 2011, p. 157). A one-time large payment for an annuity may be considered a risky gamble with uncertain results. The purchase of an annuity is mentally put into its own account, rather than being integrated with a life-long stream of small payments for consumption expenses (Hu and Scott 2007, p. 73; Thaler 2008, p. 21). Annuity purchases are irreversible. A prospective retiree may consider financial investments to be more flexible than annuities. Persons adopting the “investment frame” may prefer saving accumulation and bequest motives over longevity insurance. 2.3. Research Gap The literature review pointed to several under-researched areas. Annuitisation decisions may be moderated by household structure. Only a couple of studies have focused on the presence of children, and these did not usually distinguish between dependent and independent ones. It is accepted that annuitisation decisions are informed by the availability of alternative sources of retirement income, but few papers have thus far examined trade-offs between annuitisation and income from social security. Many important studies on annuitisation decisions have come from Anglo-Saxon countries (Australia, Canada, the UK and the USA). These countries deliver public pensions with net replacement rates below the OECD average (particularly for high-income earners) (OECD 2021, p. 145) but have highly developed and liquid annuity markets. Private pensions are of higher importance for financial comfort in old age in developed countries than in less developed ones. Very little research has been undertaken on countries with young and immature annuity markets in which a public pension is dominant but a private one is a minor source of old-age income, as is the case in Slovakia. The annuitisation decisions of prospective retirees are informed by a certain amount of knowledge and experience. “Annuity literacy”, for example, is an important predictor of annuity uptake (Goedde-Menke et al. 2014). Studies on information resources usually cover advice from banks and financial advisors, but omit informal channels, such as friends, relatives and media. 2.4. Research Hypotheses The research hypotheses reflect findings on household economics and propensity to annuitise. The literature review suggested that people with a higher income would demand higher replacement rates regarding their working-age income. The empirical literature (Alexandrova and Gatzert 2019;Lambregts and Schut 2020), however, has revealed that alternative sources of old-age income, such as intrafamily risk sharing, tend to crowd out the demand for annuities. Social security pensions provided above-average replacement rates 1 and were a key source of old-age income in Slovakia. The average monthly annuity Economies 2023,11, 123 6 of 16 from Pillar 2 (EUR 24) reflected a short saving period and replaced as little as 2.4% of preretirement income. We would therefore expect relatively low interest in annuitisation and a tendency to frame pension savings in terms of wealth rather than long-term insurance, particularly amongst classes with alternative sources of income. People and households with high incomes may therefore consider leaving their pension wealth as bequests. The bequest motives should also be important for households with married couple and dependent children. Individuals and households living on low income, on the other hand, may face severe liquidity constraints and display a higher interest in annuity uptake. Those with medium income and no prominent bequest motives may prefer accumulation to annuitisation. A higher flexibility and better choice of pension products may be of interest to people considering accumulation and bequest motives. One research hypothesis concerns the impact of information resources on the formation of annuity preferences. Annuities are complex financial products. Formal institutions (such as banks, pension managers and government bodies) are more likely to provide expert advice on annuities than informal resources (family, friends or media). We assumed that nonprofessional people were more likely to opt for annuity uptake when information was provided by formal rather than informal channels. The following research hypotheses were formulated. Hypothesis 1. Marital status impacts annuity choices. The bequest motives are preferred by married ones. Hypothesis 2. The presence of dependent children impacts annuity choices. People with children would prefer bequest to annuity purchase. Hypothesis 3. The level of current income impacts annuity choices. Hypothesis 4. The type of information resource impacts annuity choices. Hypothesis 5. The expected level of public pension impacts annuity choices. Hypothesis 6. The array of pension products impacts annuity choices. 3. Methodology 3.1. Survey on Annuitisation Preferences A survey on annuitisation preferences was the primary source of data for this research. The largest Slovak private pension manager approached a professional polling agency and implemented a survey amongst a sample of 613 individuals. This polling agency has been active in Slovakia over 30 years. It implements both regular (omnibus) and ad hoc surveys. Unlike other polling agencies, this agency collects data on a face-to-face basis, rather than via online forms. The online-based collection of data tends to filter out the elderly and/or less educated population groups. The agency maintains a network of pollsters in Slovakia. The pollsters, in turn, uphold contacts with selected members of the public, to provide for a stratified sample of the Slovak population. The stratified sample mirrors the structure of the Slovak adult population in terms of gender, age, educational attainment, income, territorial distribution (NUTS 3 level) and settlement size. A sample of 600 individuals is representative of the working age population. A network of pollsters is a major advantage of the data collection process in case of demanding topics (such as annuity choices). The agency firstly discusses contents of the questionnaire draft with pollsters. It is important to ensure that pollsters understand all the questions in the survey. The final questionnaire is produced once all issues are clarified. The pollster then approaches their respondents in persons and records their answers. The pollster explains any questions a respondent may have. Results of the survey are recorded and provided to clients in the Excel and SPSS files. The sample was representative of the Economies 2023,11, 123 7 of 16 Slovak working population aged 40–62 years in terms of gender, age, household size and structure, region, town size, occupational type and average monthly income. Many survey participants likely possessed limited knowledge of annuity properties. The introductory part of the survey therefore explained annuities (based on the Old Age Pension Law, (Zákony pre l’udín.d.) as being “lifetime private pensions”. The participants were informed that, unlike social security pensions, private annuities did not automatically include indexing and/or survivor benefits. 3.2. Dependent and Independent Variables The dependent variable reflected provisions of the Slovak Old Age Pension Saving Law. The law considers lifetime annuities to be a default option for contributors in Pillar 2 but allows for programmed withdrawals once certain income security thresholds have been met. Upon retirement, members of the funded pillar can decide on an immediate uptake of an annuity or to leave their savings with the pension manager. The latter option is favoured by those who wish to increase their savings (accumulation motive) or leave their pension wealth to somebody else (bequest motive). The following wording was used for the dependent variable : Imagine that the social security pension is sufficient to cover all of your expenses. What option would you choose? (0): taking a lifetime annuity from Pillar 2 immediately (62.9%); (1): postponing a lifetime annuity in order to increase the value of my savings in Pillar 2 (25.9%); (2): leaving all of my savings with Pillar 2 as a bequest (11.2%). Independent predictors included standard sociodemographic and socioeconomic variables (Table 2) and three items: (i) expected social security pension; (ii) key information resources for pension decision-making; and (iii) preferences towards a variety of pension products. People participating in Pillar 2 divert part of their pension contribution from social security to private pension funds. Such a diversion is reflected in a lower expected pension from social security2 . We asked participants the following question: Imagine that you have contributed to social security (Pillar 1) for 40 years, 10 years of which you were also contributing to Pillar 2. Your pension from the social security system, therefore, would be lower in comparison to a scenario in which you had never channelled part of your contribution to Pillar 2. How much lower do you expect your pension from social security to be? By about (0): 10 per cent (50.7%); (1): one-quarter (41.8%); (2): one-half (7.5%). International comparisons indicate that the Slovak population has rather low levels of financial and saving literacy (Cupák et al. 2019, p. 1610). We were interested in what sources of information were relevant for making complex financial decisions: Please tell us about your main information sources concerning Pillar 2: (0): I have no information (5.7%); (1): family, friends, mass media, the Internet (51.8%); (2): financial advisors (11.2%); (3): institutional—my bank, my pension manager company, the Ministry of Labour, Family and Social Affairs (31.3%). More flexible annuity rules and a better choice of pension products may increase the uptake of annuities (Lambregts and Schut 2020, p. 11). The following wording was used to establish preferences towards the choice of pension products :How many pension products would you like to choose from? (0): I would prefer to choose from two pension products (30.7%); (1): I would prefer to choose from three or more products (69.3%). A multinomial logistic regression (MLR) was used to analyse the research results. The MLR is applied when the dependent variable is nominal (i.e., categories are unordered) and has more than two categories. Each successive level of the dependent variable is compared against a reference category in an MLR. The regression was performed to create a model of the relationship between the predictor variables and membership in the three groups: (0): immediate uptake of an annuity, (1): accumulation motive and (2): bequest motive. The immediate uptake of an annuity was chosen for the reference category. Firstly, it had the highest frequency in the sample. Secondly, there is a fundamental difference between annuitisation and other uses of pension savings. Economies 2023,11, 123 8 of 16 Table 2. Descriptive statistics and variable coding. Variable Annuity Uptake Accumulation Motive Bequest Motive Total Age (0) 40–45 247 105 42 394 (1) 46–50 108 44 23 175 (2) 51–62 30 10 4 44 Total 385 159 69 613 Gender (0) Female 192 83 31 306 (1) Male 194 76 38 308 Total 386 159 69 614 Marital status (0) Single/divorced/widowed 85 30 9 124 (1) Married/with partner 300 129 59 488 Total 385 159 68 612 Children (0) None or independent only 159 61 13 233 (1) Independent and dependent 226 98 55 379 Total 385 159 68 612 Household size (0) One 40 12 1 53 (1) Two 70 26 10 106 (2) Three 92 39 25 156 (3) Four 124 72 27 223 (4) Five or more 59 10 6 75 Total 385 159 69 613 Education (0) Basic and lower middle, ISCED 0–2 119 46 19 184 (1) Higher middle, ISCED 3–4 206 76 33 315 (2) Tertiary, ISCED 5–6 60 37 16 113 Total 385 159 68 612 Main information resource (0) None 28 6 1 35 (1) Family and media 190 79 48 317 (2) Financial advisors 41 25 3 69 (3) Institutional (bank, pension manager, Ministry) 126 49 16 191 Total 385 159 68 612 Personal monthly net income (0) Up to EUR 500 111 34 12 157 (1) EUR 501–EUR 700 128 54 21 203 (2) EUR 701–EUR 900 85 34 6 125 (3) EUR 901–EUR 1100 17 16 8 41 (4) over EUR 1101 31 11 15 57 Total 372 149 62 583 Town size (0) Up to 5000 100 59 24 183 (1) 5001–50,000 158 47 17 222 (2) 50,001–100,000 57 21 13 91 (3) Over 100,000 70 32 14 116 Total 385 159 68 612 Economies 2023,11, 123 15 of 16 Notes 1 The Slovak net replacement ratios were 76.2% for half average, 69.4% for the mean and 64.3% for double average earnings. The respective OECD average replacement rates were 74.4%, 62.4% and 54.9%. Source: (OECD 2021, p. 145). 2 The total contribution rate for the old-age pension was 18% of the gross wage in Slovakia. Members of Pillar 2 divided their contribution between social security (9%) and private pension funds (9%) in the period 2005–2012. The Slovak government considered the fiscal burden and changed the ratio to 14% versus 4% in the period 2012–2016. The overall percentage of pension contributions (18%) remained unchanged, but the ratio between social security and private pension contributions changed from 13.75% vs. 4.25% in 2017 to 12.50% vs. 5.50% in 2022. The contribution to Pillar 2, the return on investments and annuity/withdrawal payments have all been tax-free. 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