Uncertain Pension Income and Household Saving
23 Pages Posted: 17 Oct 2012 Last revised: 9 Mar 2016
Date Written: November 2, 2015
I study the relationship between household saving and pensions, and estimate both the displacement effect of pensions on private saving and the precautionary saving effect due to uncertainty in pension income. Using a lifecycle framework, the consumption function depends on expected pension benefits and pension risk. I estimate the savings equation implied by the model using survey data for Dutch households, with subjective expectations on pension benefits and uncertainty. Exploiting exogenous variation due to pension fund performance, I show that savings decrease significantly with expected pension income, and that households save more due to uncertainty in pension income.
Keywords: Precautionary saving, Displacement effect
JEL Classification: D91, H55
Suggested Citation: Suggested Citation