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

Abstract

AbstractPopulation aging causes financial imbalances 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 public pensions by regulating their workplace pensions. This article exploits a pension reform in Taiwan that has mandated, since 2005, that all private‐sector employers contribute at least 6 percent of an employee's monthly wage to an individual pension account. I use workers in the unaffected sectors as a comparison group and employ a difference‐in‐differences method to estimate the impact of the reform on household saving rates. My estimates suggest that making private pensions mandatory significantly reduces the household saving rate by between 2.06 and 2.45 percentage points, thus implying that a $ 10 increase in the workplace pension could offset $ 5 to $ 6 of household savings.