Life-Cycle Savings and Public Policy

all households. Spouses’ assets are added to those of the head and the combined

unit is counted only once. For the individual-based analysis the assets of a married

household are divided by two and then each adult in an age band is counted as a

distinct unit.

The differences in age profiles across different types of unit are not trivial. In

particular, stock wealth is differentially lower for the youngest tax units, so that the

resulting tax unit and individual age gradients are much steeper than household

unit gradients. For example, at a household unit in the UK, the ratio of median

stock wealth of the 60–69 age band is 6.4 times that of the 20–29 age band. The

comparable number at the tax unit or individual unit level is about 10.6. These

ratios are sufficiently different to raise questions about the sensitivity of age profiles

to the widespread use of household unit analysis, particularly across countries, and

suggests this as an interesting topic for future research .

7.6 CONCLUSIONS

In this chapter we have discussed what we can learn about the age profile of saving

and saving rates from UK household data. As in other countries, inc ome and

expenditure profiles display strong hump shapes, both in cross section and also after

adjusting for possible cohort effects. Taking the difference between these profiles

to calculate a residual measure of saving we find that saving rates rise throughout

working lives, as might be expected . Somewhat surprisingly, however, saving rates

do not decline during retiremen t, although there may be a role for differential

mortality in explaining some of this lack of decline amongst the very oldest ages.

Of course, such a residual definition of saving is not without problems. Not least,

it will fail to count as saving any (unspent) capital gains on existing funds, or any

contributions into savings products that are not measured as income (such as emplo-

yer pe nsion contributions). Such effects will explain why saving rates may appear

to be ‘‘low’’ during working life, but would not explain the positive saving and

saving rates of the elderly.

We have also shown, however, that there has been substantial variation, over age

cohorts and ultimately over time, in both the contributions to, and incomes from,

various types of pension income. Such changes have occurred as a result of both

economic factors (part icularly productivity growth and cyclical factors) and reform

to either the rates or structure of the UK pension system. The UK now has three

groups of households, or individuals, distinguished by their experiences of the

pensions and savings environment. The first group are the oldest pensioners, who are

typically poor and rely almost entirely on flat-rate state pension benefits, as they were

already on the verge of retirement when SERPS w as introduced. The second group

are those currently retiring, who have built up substantial SERPS or occupational

pension benefits but who w ould not have had much chance to contract out into

private DC schemes. These pensioners are younger than the first group and also tend

7.6 Conclusions 303