The long-term effects of employer-sponsored pension plans on non-workplace returns on investments

What is the effect of having an employer-sponsored pension plan (EPP) on financial performance in non-workplace investments? This paper offers new insight into this unresolved empirical issue using administrative data on more than 345,000 tax filers from Canada. The paper makes two key contributions. First, an approach for inferring relative returns on investments is developed based on a longitudinal analysis of saving flow-of-funds and wealth data related to the use of the tax-free savings account (TFSA). The analysis shows that there is substantial heterogeneity in asset balances across individuals with equivalent saving histories. Second, having an EPP is shown to raise the average return on investment in other tax-preferred saving plans, albeit by a modest amount of approximately 0.50–1.25% over 5 years since the TFSA was introduced. This result is robust to augmenting the analysis to an instrumental variables approach, exploiting variation in the availability of EPPs across cohorts by sex and industry of employment.