The Crowding-out effect of mandatory labour market pensions schemes on private savings: evidence from

Denmark

Søren Arnberg

Danish Economic Councils

Mikkel Barslund

Danish Economic Councils

Does mandatory pension savings crowd out private voluntary savings?

Relevant for policy makers in two ways:

- does mandatory savings increase total savings?

- macroeconomic implications

Motivation

Pension wealth and saving rates:• King & Dicks-Mireaux (1982), Jappelli (1995), Alessie,

Kapteyn & Klijn (1997), Gale (1998), Euwals (2000)

Pension entitlements and private savings:• Attanasio & Rohwedder (2003), Attanasio & Brugiavini

(2003), Kim & Klump (2008)

Context

Contribution

Provide estimates of the offsetting effect of current mandatory savings on current voluntary savings

Development of the Danish labour market pension system provides a direct route to assess the substitution…

Danish labour market pension schemes

• Part of collective agreements between unions and employers associations

• Mandatory for workers in an agreement area

• Some uncovered parts of the labour market

Contribution Rates for Danish Mandatory Labour Market Pensions

201020082006200420022000199819961994

20

15

10

5

0

Pct.

LO/DA blue-collar workersLO/DA white-collar workers with a short educationSchool TeachersKindergarten TeachersGovernmental workers with a higher education

Differences in implementation

Which parts of the salary are liable for pension contributions?

• Basic salary? Always

• Payments by results? For some groups

Observed contribution rates:school teachers

1998 2005

Contribution rates

20052004200320022001200019991998199719961995

8

6

4

2

0

Pct.

35 years old45 years old55 years old

CR for labour market pension

20052004200320022001200019991998199719961995

8

6

4

2

0

Pct.

35 years old45 years old55 years old

Pension savers in the group of 30 to 55 years old

Model

voluntary savings

mandatory labour market pension savings

yearly earnings

non-contractual wealth

pension wealth

age education interaction term

itit

APit

it

itA

it

PitA

it

FitA

it

Vit u

y

s

y

ae

y

a

y

a

y

s

51

41

31

2

VitsAPits

ity

Pita 1

Fita 1

itae

Estimated offset effects from the full sample.

Estimated offset effects from the sample of school and kindergarten teachers.

Separate offset effects estimated for private pension contributions and private non-pension saving.

Work to do…

• Liquidity constraints

• And more…