The effect of tax incentives on retirement saving

This paper estimates the responsiveness of retirement saving to tax incentives for employees in Great Britain and shows how this responsiveness interacts with automatic enrolment into workplace retirement plans. For identification, I exploit a kink in the income tax schedule where there is a large, discontinuous change in the marginal price of retirement saving. Prior to the introduction of automatic enrolment, I estimate an intensive-margin elasticity of -0.21 and an extensive-margin elasticity of -0.12, suggesting that employees respond only weakly to this tax incentive to save even in a world without defaults. In 2013 to 2019, after the introduction of automatic enrolment, I find an even lower elasticity. I show this is because the large number of savers automatically enrolled into retirement accounts are entirely unresponsive to the tax incentive, even though they are potentially precisely the group policymakers might worry are undersaving for retirement. This finding has important implications for the targeting of retirement saving incentives.