Pension Wealth and Individual Saving: Some New Evidence

Abstract

ATTEMPrs TO MEASURe THE tMPACT OF SOCtAL SECURITY and private pensions on household saving have occupied much of the literature in empirical public finance over the past decade. Empirical estimates of those impacts have been quite varied (see the discussion in Aaron 1982). This paper provides new estimates of the impact of changes in holdings of social security and private pension annuities on the level of non-pension wealth. The data examined are drawn from surveys conducted for the U.S. President's Commission on Pension Policy. The impact of the social security system on individual saving has been a concern since Feldstein's (1974) pioneering paper.l The theoretical argument of Feldstein (and of Barro 1974, 1978) centers around the funding status of social security; i.e., the degree to which an unfunded social security system reduces private saving. Empirical tests of the effects of social security on saving in this line of research have been conducted in the perfect certainty version of the life-cycle model (Modigliani and Ando 1957; Modigliani and Brumberg 1954). In that approach, social security affects non-pension saving through its impact on individual intertemporal budget constraints. Disposable income during the working period falls by the amount of

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