Private wealth and pensions across European countries

We estimate the effect of mandatory pension wealth on net wealth at the household level for seven euro area countries. We innovate investigating the heterogeneity across households and across countries using data from a cross-country harmonized wealth survey (Household Finance and Consumption Survey-wave 2) combined with estimates of pension wealth (OECD pension models). We consider pension wealth indicators defined by country at the birth cohort level for various wage levels and retirement ages. Identification is provided by legislation variations across country and by non-linarites in pension scheme and differences in pension enrollment across individuals within country.
Pooling all countries together, we find a significant displacement effect of pension on net wealth: each euro of pension wealth is associated with a 62-72 cents decline in private net wealth at the mean.
We also find huge heterogeneity across countries and across the wealth distribution. For France, Belgium and Portugal significant displacement effects of pension wealth on net wealth are obtained in the bottom or in the middle of the distribution. Belgium and France are also countries where a negative significant effect of pension wealth on the probability to hold real estate properties is found. For Luxembourg and Germany we find opposite effects: pension wealth crowds in financial wealth in the bottom deciles.

JEL codes: D31, D91, H55
Keywords: Wealth, Social Security, Pensions, Life Cycle