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Public Pensions and Private Savings

Esteban García-Miralles and Jonathan Leganza
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Esteban García-Miralles: University of Copenhagen

No 21-06, CEBI working paper series from University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI)

Abstract: How does the provision of public pension benefits impact private savings? We answer this question in the context of a reform in Denmark that altered old-age benefit payouts through a discontinuous increase in pension eligibility ages contingent on birthdate. Using detailed administrative data and a regression discontinuity design, we identify the causal effects of the policy, leveraging our setting to study essentially the entire financial portfolio. We document responses over two distinct time horizons. First, we show a lack of responses after the reform was announced but before it was implemented, inconsistent with the notion that future differences in pension eligibility impact savings. Second, we show large savings responses after implementation, when delayed benefit eligibility induces individuals to extend employment. Specifically, we find increased contributions to both employer-sponsored and personal retirement accounts, whereas we find no evidence of adjustments to other savings vehicles, such as bank or stock market accounts. Additional analyses point to inertia as a leading explanatory channel. The increased savings in personal retirement plans is entirely driven by those who made consistent contributions in the past. Moreover, the increased savings in employer-sponsored plans is largely explained by continuing to contribute at employer default rates, highlighting a role for firm policies in mediating responses to social security reform.

Keywords: social security; private savings; pension reform (search for similar items in EconPapers)
JEL-codes: D14 H55 J26 (search for similar items in EconPapers)
Pages: 64
Date: 2021-03-04
New Economics Papers: this item is included in nep-age, nep-cwa, nep-dem and nep-pbe
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