The paper examines the effect of a number of significant reforms in Israel's pension system on the saving rate. Using administrative wage data, we find that between 2006 and 2019, total pension contributions for employees increased by 1 percent of GDP. About half of this increase was due to the introduction of a mandatory pension plan. Rising contribution rates were the second most important factor in accounting for the increase in total contributions. The increase in contribution rates reflected several developments, primarily the understanding that, in view of the transition to a fully-funded scheme in the New Pension Funds, expected pension benefits would be insufficient unless contributions were increased. The transition from an unfunded defined benefit pension scheme to a fully funded defined contribution scheme in the public sector accounts for only an eighth of the total increase in contributions. This is probably due in part to the fact that this transition had already begun at least a decade before the period examined here. We use findings reported in the literature regarding the rates at which individuals offset increases in pension contributions by decreasing other savings, to estimate the net effect of the pension reforms on the overall increase in Israel's household saving rate. We do so while accounting for the offset rate relevant to each reform in view of the nature of the reform, and the characteristics of the employees who were affected by that reform. We find that altogether, the reforms accounted for a 0.7 percent of GDP increase in household savings.


Keywords: Pensions, Pension System, Mandatory Pension, Unfunded Defined Benefit Pension, Savings

 

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