When should individuals save for retirement? Predictions from an economic model of household saving behaviour

When and why do employees change their pension saving?

“…One suggested solution is that of 'auto-escalation' (see, for example, Thaler and Benartzi (2004)) -that is, for default contribution rates to increase alongside increases in earnings. While there are good theoretical reasons for such a policy (Crawford, O'Brien and Sturrock, 2021), we find very little evidence that private sector employees are currently increasing their pension contribution rates when they receive an increase in earnings. Auto-escalation would, therefore, have scope for improving both the amount and timing of employees' pension contributions, although whether this should be legislated for, or whether employers should instead be encouraged to implement it themselves into their benefits packages, is an open question.…”

“…In a previous report , we found only gentle increases in pension saving with age, despite there being strong theoretical reasons for pension saving to increase substantially towards the end of working life for many employees (Crawford, O'Brien and Sturrock, 2021). One of the main reasons is that people tend to have higher earnings in the later parts of their careers, so if they wish to smooth their standard of living over their life, they should save more for retirement when their earnings are higher.…”

“…The first is changes in the number of dependent children in the household. Given the large expenses involved in bringing up children, there are good reasons for individuals to save less for retirement when they have children in their home, and to make up for this by saving more before children arrive and after they have left home, as pointed out in Crawford, O'Brien and Sturrock (2021).…”

“…The findings of that latter strand of research, published in a separate report (Crawford, O'Brien and Sturrock, 2021), are in some ways stark. They highlight that if people are seeking to smooth their living standards over their lives, then for most people there would be good reasons to expect their desired saving rate -the proportion of income being saved for retirement -to vary considerably over working life according to their circumstances.…”

The social, cultural and economic influences on retirement saving for young adults in the UK

“…Income is a key influence on pension saving, although, supporting the discussions in the previous section, we find it is not a straightforward determinant of saving amongst young people. Rather, young people interpret their current income, and thus ability to save, subjectively according to the context of their lives (Crawford et al, 2021). For example, Alfie is in his 20s and has recently started to pay rent after moving out of his parent's home.…”