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The Effect of Workplace Pensions on Household Saving: Evidence from a Natural Experiment in Taiwan

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Abstract

Population aging causes financial imbalance in pay-as-you-go public pension programs. To remedy this problem while ensuring the adequacy of retirement savings for employees, many countries complement or substitute for public pensions by regulating workplace pensions. This paper exploits a pension reform in Taiwan that has mandated, since 2005, that all private-sector employers contribute at least 6% of wages to employees’ individual pension accounts monthly. I use the workers in the unaffected sector as a comparison group and employ a difference-in-differences method to estimate the impact of the reform on the household saving rate. My estimates suggest that making private pensions mandatory significantly reduces the household saving rate by between 2.06 and 2.45 percentage points and imply that the degree of substitutability between workplace pensions and saving is about −0.50 to −0.60.

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  • Tzu-Ting Yang, 2016. "The Effect of Workplace Pensions on Household Saving: Evidence from a Natural Experiment in Taiwan," IEAS Working Paper : academic research 16-A013, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    • Handle: RePEc:sin:wpaper:16-a013
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    2. Pedro Tonon Zuanazzi & Adelar Fochezatto & Marcos Vinicio Wink Junior, 2018. "Social Security Reform and Personal Saving: Evidence from Brazil," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(9), pages 1-26, September.

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