The effect of workplace pension schemes on households' private savings

Abstract

The tax incentive enjoyed by workplace pension schemes could encourage participants to increase their total savings or, alternatively, crowd out savings that would have materialised in other financial vehicles in the absence of this incentive. This article uses data from the Spanish Survey of Household Finances to estimate the additional savings generated by this type of scheme. To this end, the financial position of workplace pension scheme participants is compared to that of a group of workers of similar ages, with similar educational attainment levels and occupations, but who do not participate in such schemes. Once the comparable group is constructed, it can be seen that, on average, each euro saved in workplace pension schemes increases private savings by around 66 cents. This is the ratio of the difference in average net wealth between participants and their comparable group (€13,600) to the average amount accumulated in pension schemes (€20,600). Once adjusted for the fact that contributions are taxexempt, the additional savings generated amount to around 31 cents for every euro contributed, calculated as the ratio of the €6,500 difference in tax-relief-adjusted wealth between the two groups to the average amount accumulated in workplace pension schemes.