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How effective are Matching Schemes in enticing low-income earners to save more for retirement? Evidence from a national scheme

Author

Listed:
  • Marc Chan

    (Department of Economics, The University of Melbourne Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University)

  • Cain Polidano

    (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)

  • Ha Vu

    (Department of Economics, Deakin University; Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University)

  • Roger Wilkins

    (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne; Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University IZA Institute of Labor Economics)

  • Andrew Carter

    (Australian Taxation Office)

  • Hang To

    (Australian Taxation Office)

Abstract

Concerns over the adequacy of retirement income of low and middle-income earners have led governments to introduce targeted matching schemes to incentivise contributions to private pensions. In this study, we estimate the impacts of a simple Australian scheme, using administrative tax-filer data and exploiting longitudinal changes in eligibility and matching rates. We find modest increases in the proportion of people making contributions, but reductions in average contributions due to dominant negative income effects. We also find stronger income effects among people with low permanent income, possibly reflecting liquidity constraints. Finally, we find asymmetry in the magnitude of responses to changes in the matching entitlement, with decreases eliciting stronger responses than increases. Taken together, our findings cast doubt on the effectiveness of targeted matching schemes to lift retirement savings.

Suggested Citation

  • Marc Chan & Cain Polidano & Ha Vu & Roger Wilkins & Andrew Carter & Hang To, 2020. "How effective are Matching Schemes in enticing low-income earners to save more for retirement? Evidence from a national scheme," Melbourne Institute Working Paper Series wp2020n27, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2020n27
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    References listed on IDEAS

    as
    1. Cain Polidano & Andrew Carter & Marc Chan & Abraham Chigavazira & Hang To & Justin Holland & Son Nguyen & Ha Vu & Roger Wilkins, 2020. "The ATO Longitudinal Information Files (ALife): A New Resource for Retirement Policy Research," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 53(3), pages 429-449, September.
    2. Esther Duflo & William Gale & Jeffrey Liebman & Peter Orszag & Emmanuel Saez, 2006. "Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1311-1346.
    3. Bradley T. Heim & Ithai Z. Lurie, 2014. "Taxes, Income, And Retirement Savings: Differences By Permanent And Transitory Income," Contemporary Economic Policy, Western Economic Association International, vol. 32(3), pages 592-617, July.
    4. Raj Chetty & John N. Friedman & Søren Leth-Petersen & Torben Heien Nielsen & Tore Olsen, 2014. "Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts: Evidence from Denmark," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1141-1219.
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    More about this item

    Keywords

    Private pension; matching schemes; retirement income; aging population;
    All these keywords.

    JEL classification:

    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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