Changing savings patterns in Sweden; Effects on private savings from the Swedish pension reform in the 1990s

Sammanfattning: Many countries struggle to sustain their pension systems in the face of demographic shifts and increasing life-expectancies. Without reforms that deal with systemic funding issues, many pensions systems around the world might prove unsustainable in the years to come. Sweden successfully managed to reform its pension system in the 1990s. It did so by going from an unfunded Defined Benefit system to a partially funded Defined Contribution system. This thesis studies the effect on private savings from the reform, and a first-difference multivariate regression is used to identify this effect. The thesis also examines whether the size of the change, if any, in private savings is in accordance with the predictions of prevailing theory. Later, it is shown that there has been an increase in private savings as a result of the pension reform. However, it is argued that this increase is not large enough to offset the decrease in expected future payments. The most compelling explanation for the shortfall is found to be the possibility of working longer as a substitute to private savings. That leads to a prediction that people will choose to work longer to compensate for the insufficient increase in the private savings rate.