Pension Funds, Personal Savings, and Economic Growth

Pension funds are the fastest growing of all financial institutions. They now cover half the labor force and represent one-eighth the financial assets of the entire household sector. This study investigates whether pension savings represent a substitution for other forms of personal saving. Past analyses reveal no consensus on this question. The hypothesis examined in this study is that people disregard pension savings and save in other ways and amounts. To the extent this is true, pension funds may enhance economic growth by increasing the aggregate level of savings available for investment. If, on the other hand, people save less in other forms, pension funds may be an important area of concern in the increasing rivalry among financial intermediaries for household deposits. Highlighting the implications of this analysis is the virtual certainty that pension funds will continue to increase in scope and size.