Uncertain Pension Income and Household Saving
Sveriges Riksbank Working Paper Series No. 330
34 Pages Posted: 7 Dec 2016
Date Written: October 2016
This paper investigates the relationship between household saving and pensions, and estimates both the displacement effect of pensions on private saving and the precautionary saving effect due to uncertainty in pension income. I estimate the savings equation derived from a life cycle model featuring income uncertainty using survey data for Dutch households, with subjective expectations on pension benefits and uncertainty. Exploiting exogenous variation due to pension fund performance, I find that households save significantly more due to uncertainty in pension income. Not controlling for uncertainty biases the estimated displacement effect of pensions on private savings towards zero.
Keywords: Precautionary saving, Displacement effect, Subjective expectations
JEL Classification: D91, H55, J26
Suggested Citation: Suggested Citation