Pension reform: Disentangling retirement and savings responses

Maarten Lindeboom, Raymond Montizaan

Research output: Working paperDiscussion paperProfessional

Abstract

In January 2006, the Dutch government implemented a pension reform that substantially reduced the public pension wealth of workers born in 1950 or later. At the same time, a tax-facilitated savings plan was introduced that substantially reduced the saving costs of all workers, irrespective of birth year. This paper uses linked administrative and survey data to assess the effect of the reform on the savings and retirement expectations and realizations of two virtually identical male cohorts that differ only in treatment status, the treated having been born in 1950 and the controls having been born in 1949. We show that retirement expectations are in line with realizations and that the reform had the intended effect on the labor supply for the larger part of the workers, namely, those without sufficient means to substantially increase private savings to counter the effect of the reform. These workers, who are generally in worse health, have zero substitution rates between private and public wealth. On the other hand, there is a group of mostly high-wage workers who participate in the tax-facilitated Life Course Savings Scheme and who increase private savings to fully counter the impact of the drop in public wealth. A further, unintended side effect of the introduction of the tax-facilitated savings plan is that high wage earners who are not affected by the drop in pension wealth retire even sooner than initially planned.
Original languageEnglish
Place of PublicationBonn
PublisherIZA
Publication statusPublished - 2018

Publication series

SeriesIZA Discussion Paper Series
Number11620

JEL classifications

  • j26 - "Retirement; Retirement Policies"
  • h55 - Social Security and Public Pensions
  • j14 - "Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination"

Keywords

  • natural experiment
  • regression discontinuity
  • retirement
  • private wealth
  • crowding out
  • substitution rate

Cite this