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Examining the interaction between saving and contributions to Personal Pension Plans. Evidence from the BHPS

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  • Mariacristina Rossi

    (University of Rome, Tor Vergata and Center for Research on Pensions and Welfare Policies, Turin)

Abstract

This paper analyses the effects of social security reforms on saving in Britain. Following the 1986 Social Security Act, the UK pension system has partially shifted from an unfunded basis towards a partially funded basis. Under the new pension scheme, individuals are given the option of contracting out of the earning related pension scheme into a personal pension plan comparable to the IRA pension plan existing in the US. Individuals are also given the possibility of making additional contributions to their pension plan. These contributions represent an attractive form of saving in that they receive a more generous tax treatment than other conventional forms of saving. We use the BHPS dataset for the years 1991 to 2003 to investigate the interactions between voluntary additional contributions to personal pension plans (PPP) and saving in conventional forms. In particular, we test whether contributions to the PPP crowd out saving or constitute additional saving. We estimate the determinants of the amount saved in conventional forms and for retirement purposes with different estimation strategies by allowing the two choices to be correlated. According to our findings, the introduction of private pension schemes has not exhibited a crowding out effect on private saving.

Suggested Citation

  • Mariacristina Rossi, 2006. "Examining the interaction between saving and contributions to Personal Pension Plans. Evidence from the BHPS," CeRP Working Papers 49, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    • Handle: RePEc:crp:wpaper:49
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    2. Arun Advani & Hannah Tarrant, 2021. "Behavioural responses to a wealth tax," Fiscal Studies, John Wiley & Sons, vol. 42(3-4), pages 509-537, September.
    3. Maria Teresa Medeiros Garcia & Beatriz Costa, 2020. "Performance of Personal Pension Funds in Portugal," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(3), pages 259-272, August.
    4. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2010. "The Impact of Structural Policies on Saving, Investment and Current Accounts," OECD Economics Department Working Papers 815, OECD Publishing.
    5. Ludmila Fadejeva & Olegs Tkacevs, 2021. "Are Tax-Favoured Savings Plans Effective in Raising Private Savings?," Discussion Papers 2021/01, Latvijas Banka.
    6. Clovis Kerdrain & Isabell Koske & Isabelle Wanner, 2011. "Current Account Imbalances: can Structural Reforms Help to Reduce Them?," OECD Journal: Economic Studies, OECD Publishing, vol. 2011(1), pages 1-44.

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    Keywords

    Social Security; Saving;

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