The Effect of Public Pension Eligibility Age on Household Saving: Evidence from a New Zealand Natural Experiment (WP 14/21)

Abstract

This paper examines the effect of the last increase in the eligibility age for New Zealand's public pension, New Zealand Superannuation, on household saving rates. The age of eligibility was increased progressively from 60 to 65 years old between 1992 and 2001, with little forewarning. Drawing on Household Economic Survey data, the paper uses difference-in-difference regression analysis to compare the last cohorts to receive New Zealand Superannuation at the age of 60 years old with the first to face higher eligibility ages. The policy change is found to have increased average saving rates of affected households, particularly among middle-income and older households. The increase in saving rates is associated with higher household labour supply and income, and lower expenditure. The results suggest the policy change initially lifted the aggregate household saving rate by around 2.5 percentage points with the effect declining slightly over time.

Acknowledgements

The authors wish to thank Hamish Low, and reviewers Orazio Attanasio, Adam Jaffe, Andreas Heuser and Katherine Meerman for their helpful comments and suggestions. This paper extends research originally undertaken by Mark Vink as part of the requirements for the degree of Master of Philosophy in Economics, University of Cambridge, 2013. An earlier version of this paper was presented at 55th Annual Conference of the New Zealand Association of Economists 2014, where it was awarded the Statistics New Zealand prize for the best use of statistics.

Disclaimer

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.