THE EFFECT OF POPULATION AGING AND PENSION SCHEMES ON HOUSEHOLD SAVINGS IN TAIWAN

Abstract

This paper investigates the effect of aging and pension reforms on Taiwanese household savings. Specifically, it tests the hypothesis that the private and public pension reforms in 1995 and 2005 significantly contributed to the reduction in household savings from 1993 to 2012. We use data from the Survey of Family Income and Expenditure from 1981 to 2012. Our results defy the conjecture. Few key insights, however, emerge from our analysis. Firstly, we attribute the fall in household savings to reduced savings by younger cohorts. Secondly, we find the life cycle model inadequate for describing Taiwanese savings, but observe household consumption to closely track household income. Thirdly, we discover private and public sector workers to convey distinct savings age-profiles. As for transitions from “defined benefit” to “defined contribution” schemes, in both sectors, they encouraged savings in early career, but diminished savings before retirement.