Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 330: Uncertain pension income and household saving

Peter van Santen ()
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Peter van Santen: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

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 lifecycle 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-codes: D91; H55; J26

41 pages, October 1, 2016

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