Most Western countries face an aging population. For example, in the Netherlands the ratio of workers to pensioners will fall from four in 2012 to two in 2040. In other Western countries, the numbers are comparable. This is caused by two things: First, the Post-World War II baby boom. This event will have a temporary effect on the age structure of Western countries. The second cause, increasing life expectancy, is permanent. Although increasing life expectancy is a joyful thing in itself, it poses large challenges to health care costs and the economic viability of pension systems.
Several measures have been taken to meet the aging challenge. The legal retirement age has been increased, measures have been taken to increase labor supply among older workers, and some countries are switching from a pay-as-you-go pension system to a funded system. All these measures are part of the solution to the aging problem, but might have other effects as well. For example, Davis and Hu (2008) claim that funding of pensions spurs economic growth.
A related development is the trend from defined benefit towards defined contribution schemes. An important feature of a defined contribution system is that individuals (or households) have to absorb investment shocks, interest rate shocks, and inflation shocks themselves, while in a defined benefit system intergenerational risk sharing spreads these shocks out over different generations. Therefore, the shift towards defined contribution can be seen as part of the broader shift towards more individual responsibility. Saving for retirement becomes more and more an individual task, also in the Netherlands.
This thesis aims to answer important questions related to aging and saving behavior of households: How do retirement replacement rates affect saving behavior of households? What are the macroeconomic effects when governments decide to reform the pension system? These two questions are the main focus of attention of this thesis. To be a bit more specific, this thesis consists of four studies. The first three studies (Chapters 2, 3, and 4) examine life-cycle saving patterns, while the last study (Chapter 5) deals with the presumed link between funding of pensions and economic growth.
