Uncertain Pension Income and Household Saving

Riksbank Research Paper Series No. 154

Sveriges Riksbank Working Paper Series No. 330

34 Pages Posted: 7 Dec 2016

Multiple version iconThere are 2 versions of this paper

Date Written: October 2016

Abstract

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

van Santen, Peter, Uncertain Pension Income and Household Saving (October 2016). Riksbank Research Paper Series No. 154, Sveriges Riksbank Working Paper Series No. 330 , Available at SSRN: https://ssrn.com/abstract=2871947 or http://dx.doi.org/10.2139/ssrn.2871947

Peter Van Santen (Contact Author)

Sveriges Riksbank ( email )

Brunkebergstorg 11
Stockholm, SE-103 37
Sweden
004687870569 (Phone)
00468210531 (Fax)

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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