What We Know and What We Do NOT Know

As the publicly financed pay-as-you-go pension systems in Europe come under increasing pressure, workers and politicians rediscover private savings for retirement in Europe – the provision of self-financed rather than state-financed old-age insurance. This paper summarizes our knowledge about the retirement savings motive, and particularly the willingness of individuals to participate in voluntary and/or mandatory private saving schemes for retirement. We also review our knowledge of crowding-out effects, that is, to which extent state-financed old-age insurance substitutes for self-provided old-age insurance, and to which extent retirement saving crowd out other saving. The state of the art is less than satisfactory. We have little reliable evidence on life-cycle saving patterns and its policy determinants. Moreover, while we have some convincing evidence that there is substitution between public and private old-age insurance, the extent of potential crowding out is still very much disputed. One of the main reasons is lack of suitable data. The paper points to specific strategies that enable our governments to base current and future pension reform decisions on a more solid foundation.