Determining displacement effect of public pension on private wealth using post-retirement data

Abstract

This paper examines the displacement effect that public pension wealth has on an individual’s private savings. Due to the presence of the many difficulties one faces while studying the displacement effect among pre-retired individuals, such as limited data about an individual’s planned future consumption and income streams, this study thus presents a new method for estimating the displacement effect by using post-retirement data in an attempt to circumvent the aforementioned difficulties. This new method is derived from the idea that at a particular point in the individual’s life, there would be no savings or dis-savings effects occurring thereby allowing displacement effect to be shown clearly. We attempted this new method on the Eurosystem Household Finance and Consumption Survey (HFCS) data and observed an overall negative estimate that is significant at 15% level.