Veritas propter investigationem [Truth through research]
TitleThe Effect of Public Pension Eligibility Age on Household Saving- Evidence from a New Zealand Natural Experiment (2014)
AuthorsTalosaga Talosaga
 Mark Vink
InstitutionNew Zealand Treasury
TopicsPublic pension reform
 State pension age
 Saving rates
CountryNew Zealand
Date Published2014
Date posted on PR26 May 2015
Talosaga, T Vink, M, (2014). The Effect of Public Pension Eligibility Age on Household Saving- Evidence from a New Zealand Natural Experiment (2014) New Zealand Treasury,

PensionReforms’ summary and comments

New Zealand’s Tier 1 pension (‘New Zealand Superannuation’ or NZS) has been through several major reforms over the period 1975 to 2002 (see here for a summary history).  With particular reference to this 2014 report, the State Pension Age was reduced to age 60 in 1977 and then, between 1992 and 2002, increased gradually back to age 65.


“This paper has assessed the effects of the last increase in the NZS eligibility age, from 60 to 65 years old, on household saving rates using difference-in-differences regression analysis.”


This compared the positions of the households that had an age 60 State Pension Age with equivalent households that faced a later starting age.


As might be expected, there was a relatively strong response in private behaviour to the increasing age’s ‘natural experiment’:

“The analysis suggests the policy change caused an average increase in household saving rates of around 2 percentage points for each additional year added to the eligibility age faced by the household head.”


The report suggests that those who faced the full five-year increase (who were born after 1937) increased their average annual savings rate by 10 percentage points.  The announcement of the change was made in 1991 and the data shows an immediate change in saving behaviour “…and it appears to have been greatest on older and middle-income households. These results are generally robust to a variety of sensitivity and falsification tests.”


The impact was illustrated in “…disposable income, expenditure, and labour supply, although the findings for income and expenditure are less robust than for saving rates.  Disposable income and labour supply are found to have increased as a result of the policy change, while the effect on expenditure is negative.  The positive effects on disposable income and labour supply are, again, greatest for older households.”


In fact, the group aged 60 to 64 at the time of the announcement tended to ‘over-compensate’ for the expected losses of state-provided incomes.


“Labour market frictions, such as a lack of part-time work opportunities, provide one plausible explanation for the apparent excess sensitivity of labour supply and income to the policy change.”


The overall average increase in saving rates seems to have been 2.5 percentage points settling to 2 percentage points by 1998.


At the time, NZS was subject to an income test (the ‘surcharge’) so the report suggests that a future change to increase the State Pension Age (65) of the now-universal NZS might show a higher impact on saving rates, given there is more to lose.


PensionReforms thinks this is all as might be expected.  To the extent that New Zealanders relied on NZS to support their standard of living in retirement, it was a sensible reaction to increase private provision to compensate for the ‘loss’. 


PensionReforms suggests that the reaction was probably emphasised by the considerable political turmoil that surrounded the changes announced in 1991; also that the reduction to age 60 had taken place just 15 years previously – within the living memories of those relatively close to the State Pension Age.  The extra saving effect may have been as much precautionary as compensatory.  PensionReforms does not expect such environmental issues to be repeated.  (File size 450 KB; 40 pp) 725