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Pensions, Savings and Housing: A Life-cycle Framework with Policy Simulations

Publication Details

  • Pensions, Savings and Housing: A life-cycle Framework with Policy Simulations (WP 14/14)
  • Published: 18 Nov 2014
  • Status: Current
  • Authors: Creedy, John; Gemmell, Norman; Scobie, Grant M
  • Pages: (2),v,44
  • ISBN: 978-0-478-42194-1 (Online)
  • Ref. No: WP 14/17
  • Pub. type: Working Papers
  • Responsible units: Housing
  • Copyright: © Crown Copyright
  • JEL Classification: D12; H24; H31; J26

Pensions, Savings and Housing: A Life-cycle Framework with Policy Simulations

Published 18 November 2014

Authors: John Creedy, Norman Gemmell and Grant Scobie


The objective of the paper is to explore the saving and consumption responses of a representative household to a range of policy interventions such as changes in taxes and pension settings. To achieve this, it develops a two-period life-cycle model. The representative household maximises lifetime utility through its choice of optimal levels of consumption, housing and saving. A key feature of the approach is modelling the consumption of housing services as a separate good in retirement along with the implications for saving. Importantly, the model incorporates a government budget constraint involving a pay-as-you-go universal pension. In addition, the model allows for a compulsory private retirement savings scheme. Particular attention in the simulations is given to the potential impact on household saving rates of a range of policy changes. Typically the effect on saving rates is modest. In most instances, it would take very substantial changes in existing policy settings to induce significant increases in household saving rates.

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Executive Summary

1 Introduction

2 A Two-period Framework

3 The Life-Cycle Model

4 The Government's Budget Constraint

5 Calibrating the Model

6 Simulating Policy Changes

7 Tax and Expenditure Policy Changes

8 Impact of Other Policy Changes

9 Economy-wide and Demographic Changes

10 A Summary of the Policy Simulations

11 Conclusions

Appendix A: Renting versus Ownership

Appendix B: No Interest-Income Tax

Appendix C: A CES Utility Function


wp-14-14.pdf (659 KB) pp. (2),i-v,1-44


We are grateful to Chris Ball, Peter Bushnell, Richard Disney, Adam Jaffe, Michael Reddell, Paul Rodway, Chung Tran, Mark Vink and Justin van de Ven for comments on earlier versions of this paper. We have also benefited from comments by participants at a Treasury seminar presentation.


The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate

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