Economists have long suggested that higher pension benefits “crowd out” other sources of household saving. Despite the important role public and private pensions play in policy debates in the United States, the empirical evidence on the extent of crowd-out is mixed. This paper exploits detailed information on pensions in the 1992 wave of the Health and Retirement Study (HRS) and employs a novel empirical strategy that combines two instrumental-variable approaches to identification. The instrumental-variable estimates suggest a significant pension-saving offset: each dollar of pension wealth is associated with about a 60 cent decline in non-pension wealth, an 18 cent decline in non-business wealth, and a 65 cent decline in non-housing wealth at the mean. There is evidence of substantial heterogeneity in the pension-saving offset across the wealth distribution, with zero or very small positive offsets at the quantiles at or below the median of the wealth distribution, but significant offsets of 70 cents to dollar-for-dollar in the upper quantiles.
