Saving incentives, old-age provision and displacement effects: evidence from the recent German pension reform

Abstract

In response to population aging, pay-as-you-go pensions are being reduced in almost all developed countries. In many countries, governments aim to fill the resulting gap with subsidized private pensions. This paper exploits the recent German pension reform to shed new light on the uptake of voluntary, but heavily subsidized private pension schemes. Specifically, we investigate how the uptake of the recently introduced 'Riester pensions' depends on state-provided saving incentives, and how well the targeting at families and low-income households works in practice.We show that, after a slow start, private pension plans took off very quickly. While saving incentives were effective in reaching parents, they were less successful in attracting low-income earners, although Riester pensions exhibit a more equal pattern by income than occupational pensions and unsubsidized private pension plans.We also provide circumstantial evidence on displacement effects between saving for old-age provision and other purposes. Households who plan to purchase housing are less likely to have a Riester pension. The same holds for households who attach high importance to a bequest motive. Occupational pensions and other forms of private pensions, however, act as complements rather than as substitutes.

Betting on a Long Life – the Role of Subjective Life Expectancy in the Demand for Private Pension Insurance of German Households

“…Instead, ahead thinking households tend to rely on several sources of old-age income. This finding is in line with other studies that also find a positive relationship between participation in alternative old-age provision and uptake of private pension plans (Börsch-Supan et al (2008b) and Inkmann et al (2009)) 13 . Finally, net (equivalent) household income also does not seem to play a role in the uptake of private pension insurance.…”

“…While Börsch-Supan et al (2008b) estimate a weakly significant positive impact of income on pension insurance uptake, our result corresponds to Brown et al (2008a) 14 .…”

“…Wealthy households run a lower risk of depleting their assets before death so that total wealth is theoretically supposed to negatively impact the probability of opting for supplementary private pension insurance. However, in accordance with Börsch-Supan et al (2008b), Brown et al (2008a) andInkmann et al (2009), we do not find this relationship in our data. In a similar manner, other insurance-type old-age provision can be seen as a substitute to private pension insurance such that a negative relationship is expected again.…”

“…9 The presence of children is accounted for to capture a possible bequest motive in old-age provision (Hurd (1987), Bernheim (1991), Johnson et al (2004), Börsch-Supan et al (2008b) and Inkmann et al (2009)). Yet other authors rely on self-reported importance of bequest motives (Brown (2001)) or the existence of a will or trust (Brown et al (2008a)).…”

Who is Saving Privately for Retirement and How Much? - New Evidence for Germany

“…Marking a turning point in the German pension policy, several studies analyzed the determinants of a take-up of Riester pension plans e.g. Pfarr andSchneider (2011), Lamping andTepe (2009) and Börsch-Supan et al (2008). 5 Dummann (2008) and Weber and Beck (2014) concentrated on the determinants of participation in occupational pension plans.…”