Income uncertainty and retirement savings in different pension systems: An experimental study

Postdoctoral Research Associate, Durham University (UK).

Dr. Szymczak's CV: Upload/File/2019/3/20190307115249245.pdf

We develop a behaviorally informed model of dynamic consumption-saving decisions, and propose an experimental design to analyze how people’s saving decisions vary across pension systems with one, two or three di˙erent saving mechanism that mimic common features of real-world pension systems. Although subjects fail to consume optimally across all systems, we find that a voluntary but binding savings product induces subjects to save more. In contrast, we find that obligatory contributions do not induce people to save more overall. Moreover, subjects perform worse when income is stochastic rather than constant, casting doubt on the empirical relevance of the precautionary savings motive. In line with this finding, risk aversion does not seem to have a significant e˙ect on savings, while better cognitive abilities lead to better savings decisions.