The Trade-Off between Housing and Pensions in the Household Portfolio of the Eldery

Both household investments in own housing and payments into the pension system are forms of a life-cycle redistribution process of income from working age to retirement. They can be seen as a store of wealth that can be released in the old-age. There is a already well-established theory about a possible trade-off between both income forms or more generally speaking between home ownership and the development of the welfare state. This paper adds to the existing literature by estimating the offset between pension and housing wealth using cross-sectional data of households in 12 European countries within the Survey of Health, Ageing and Retirement in Europe (SHARE), a multidisciplinary panel database that includes data on health, socio-economic status and social and family networks of more than 85,000 individuals aged 50 or over. We calculate all measures of wealth including pension wealth at the peak of the households asset wealth curve to analyze their portfolio composition with a focus on pension and housing wealth. By applying a simple life-cycle model we find empirical evidence in favor of the trade-off theory. However we are able to show that the offset effect varies between countries which is in line with expectations due to differences in their pension system.