Retirement Savings: Financial Incentives and Temptation
(GEBZE TECHNICAL UNIVERSITY)
NOVEMBER 18, 2020
Abstract: In the last decade, two important reforms in retirement saving plans were introduced in Turkey. In 2013, the government started to provide state subsidy up to 25% of employees’ paid contributions to private pension accounts. Four years later, in 2017, another retirement saving policy, an automatic enrollment system, was announced along with the previous state subsidy policy. These two retirement saving policy reforms provide a quasi-experimental design to analyze and compare the impacts of state subsidy as financial incentive policy and automatic enrollment as a behavioral retirement saving policy. In this part of our research, using individual data for all retirement saving account holders and quasi-experimental designs, we report how financial incentives, the state subsidy scheme, are effective in raising individual saving contributions. Moreover, we consider a behavioral aspect of financial incentive policy and analyze whether retirement saving subsidies are more effective in raising savings of tempted savers compared to ones without temptation. Our OLS and difference in differences estimations show that the state subsidy program significantly raised saving contributions and implementation of the program resulted 1255TL increase in average yearly contribution of individuals. The impact of subsidy program in raising contributions is significantly larger for tempted individuals the study concludes.