Pension reform and saving

We estimate the impact of increased pension funding on national saving, both in public budgets and in the private sector. First, the experience of U.S. state governments in managing their employee pension funds suggests that their pension accounts are managed apart from the non-pension operating budget and that it is possible to fund a pension system within the public sector. On the other hand, an examination of the experience of national-level governments indicates that a large proportion (60-100 percent) of the fund accumulation in national social insurance systems is offset within the government sector by larger deficits in other budgetary accounts. We argue that the contrasting results for U.S. states and OECD nation states can be traced to differences in the governance of the pension systems and the degree of effort that is made to separate the pension funding from other budget activities. We also examine the cross-national evidence on saving responses within the private sector to fluctuations in private insurance and pension fund accumulation. We find substantial evidence that pension saving substitutes for other forms of private saving.