Shocks to Occupational Pensions and Household Savings
Published: 13 April 2023
This paper studies the saving response of households to shocks in the capital position of their pension fund. Using survey panel data matched to supervisory data of Dutch occupational pension funds for a period that involved three major economic crises, we provide evidence of an increase in savings driven by a worsening of the financial position of pension funds. The identification strategy exploits cross-sectional and time variations in the funding ratios of pension funds. These variations are exogenous shocks to the pension wealth of pension fund members as these result from asset price adjustments and asset allocations over which members have no direct control. We show significant saving responses to general changes in the funding ratios, as well as to direct shocks to pension funds such as in the event of a funding deficit or a stop to conditional indexation. The change in savings is especially seen among workers who participate in pension funds with historically lower returns.
Keywords: D14; G51; H55
JEL codes Household saving; occupational pensions; funding ratios
Working paper no. 775
775 - Shocks to Occupational Pensions and Household Savings
Research Highlights:
- During the Covid-19 pandemic funding ratios of pension funds fell by nearly 10 percentage points. A DNB survey at the time revealed that this fall induced many households to fear pension curtailments.
- We investigate the household savings response to previous periods of pension curtailments and show significant saving responses to changes in the funding ratios.
- The change in savings is especially seen among workers who participate in pension funds with historically lower returns.
- Shocks to pension wealth could also be perceived soon, depending on how the new systems will translate entitlements in pension wealth.
- As saving responses are heterogenous across the population, one should not assume that compensating shifts to pension wealth across groups will also compensate the saving response.
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