Regulating Markets for Retirement Products: Evidence from Chile

Private annuities have the capacity to significantly improve retiree welfare by providing them with secure income in retirement. They are becoming even more valuable as retirees face longer lifespans and fewer employer-provided defined benefit pensions. Regulation of these markets can play an important role in affecting annuity prices, and in turn in broadening access to annuities across wealth levels. We study the unique regulatory regime introduced in Chile, which institutes a government-run exchange for annuities intended to intensify competition and facilitate information sharing between firms and consumers without placing significant restrictions on the market. The design of Chile’s market has resulted in low prices and a high voluntary annuitization rate compared to international averages. Using cutting edge structural estimation techniques and unusually rich administrative data, we separately identify demand for, and supply of, annuities in Chile as a function of regulatory and market characteristics. These estimates are subsequently used to shed light on the welfare and distributional effects of alternative regulatory regimes, including limits on price discrimination, restrictions of consumer choice sets, and the elimination of the governmentrun exchange.