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Pension wealth and household saving: evidence from pension reforms in the UK

Author

Listed:
  • Orazio Attanasio

    (Institute for Fiscal Studies and Yale University)

  • Susanne Rohwedder

    (Institute for Fiscal Studies)

Abstract
Using three major UK pension reforms as natural experiments we investigate the relationship between pension saving and discretionary private savings. Unlike most differences-in -differences approaches which rely on average differences between the control and the treatment group, we use economic theory to model the response of each individual household. The model permits us to use both time- series and cross-sectional variation in a consistent way to identify the behavioural response. The study is based on data from the Family Expenditure Survey. A measure of pension wealth is not observed, but we estimate it by applying the rules of the pension system to observed individual characteristics. The changes in pension wealth as a result of the reforms are substantial. The empirical analysis suggests that the earnings -related tier of the pension scheme has a negative impact on private savings with substitution elasticities approaching 1.0. The impact of the flat-rate tier of the scheme is found not to be significantly different from zero.

Suggested Citation

  • Orazio Attanasio & Susanne Rohwedder, 2001. "Pension wealth and household saving: evidence from pension reforms in the UK," IFS Working Papers W01/21, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:01/21
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    File URL: http://www.ifs.org.uk/wps/wp0121.pdf
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    References listed on IDEAS

    as
    1. Orazio P. Attanasio & Agar Brugiavini, 2003. "Social Security and Households' Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 1075-1119.
    2. William G. Gale, 1998. "The Effects of Pensions on Household Wealth: A Reevaluation of Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 706-723, August.
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    7. R Disney & C Emmerson & M Wakefield, 2001. "Pension reform and saving in Britain," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 17(1), pages 70-94, Spring.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. van Rooij, Maarten C.J. & Kool, Clemens J.M. & Prast, Henriette M., 2007. "Risk-return preferences in the pension domain: Are people able to choose?," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 701-722, April.
    2. Timm Bönke & Markus M. Grabka & Carsten Schröder & Edward N. Wolff & Lennard Zyska, 2019. "The Joint Distribution of Net Worth and Pension Wealth in Germany," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(4), pages 834-871, December.
    3. Thomas Crossley & Hamish Low, 2011. "Borrowing constraints, the cost of precautionary saving and unemployment insurance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(6), pages 658-687, December.
    4. Garry F. Barrett & Yi-Ping Tseng, 2008. "Retirement Saving in Australia," Canadian Public Policy, University of Toronto Press, vol. 34(s1), pages 177-193, November.
    5. Jappelli, Tullio & Padula, Mario & Bottazzi, Renata, 2005. "Retirement Expectations, Pension Reforms and Their Effect on Private Wealth Accumulation," CEPR Discussion Papers 4882, C.E.P.R. Discussion Papers.
    6. Conny Olovsson, 2014. "How Does a Pay-as-you-go System Affect Asset Returns and the Equity Premium?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 131-149, January.
    7. Adeline Delavande & Susann Rohwedder, 2008. "Individuals’ Responses to Social Security Reform," Working Papers wp182, University of Michigan, Michigan Retirement Research Center.
    8. Imrohoroglu, Selahattin & Kitao, Sagiri, 2009. "Labor supply elasticity and social security reform," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 867-878, August.
    9. Callan, Tim & Keane, Claire & Walsh, John R., 2009. "Pension Policy: New Evidence on Key Issues," Research Series, Economic and Social Research Institute (ESRI), number RS14.
    10. repec:diw:diwwpp:dp677 is not listed on IDEAS
    11. van Rooij, Maarten C.J. & Kool, Clemens J.M. & Prast, Henriette M., 2007. "Risk-return preferences in the pension domain: Are people able to choose?," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 701-722, April.
    12. Werner Dirschmid & Ernst Glatzer, 2004. "Determinants of the Household Saving Rate in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 25-38.
    13. Cocco, Joao F. & Lopes, Paula, 2004. "Defined benefit or defined contribution?: An empirical study of pension choices," LSE Research Online Documents on Economics 24751, London School of Economics and Political Science, LSE Library.
    14. Viola Angelini & Peter Simmons, "undated". "Housing Debt, Employment Risk and Consumption," Discussion Papers 05/07, Department of Economics, University of York.

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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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