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How does pension saving change when individuals complete repayment of their mortgage?

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  • Rowena Crawford

    (Institute for Fiscal Studies and Institute for Fiscal Studies)

Abstract

We examine the extent to which owner-occupiers in their 50s and 60s change their private pension saving when they complete repayment of the mortgage on their primary residence. Using panel data from a household survey, the English Longitudinal Study of Ageing, we identify those who completed repayment of their mortgage as anticipated two years prior. Despite mortgage expenditures falling by over £200 per person on average, there is little resulting change in average pension saving. This is because only a small minority of individuals react – the probability of an individual increasing their monthly pension saving by more than £150 increases by only 5 percentage points on completing repayment of a mortgage. This suggests that if policymakers wish to influence behaviour in order to increase private pension saving, interventions targeted at those completing their mortgage repayment could be a tractable approach. Such individuals would be able to increase pension saving while maintaining spending at recent levels.

Suggested Citation

  • Rowena Crawford, 2020. "How does pension saving change when individuals complete repayment of their mortgage?," IFS Working Papers W20/39, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:20/39
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    References listed on IDEAS

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    1. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
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    3. Barry Scholnick, 2013. "Consumption Smoothing after the Final Mortgage Payment: Testing the Magnitude Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1444-1449, October.
    4. Jonathan Cribb & Carl Emmerson, 2019. "Requiring Auto-Enrollment: Lessons from UK Retirement Plans," Issues in Brief ib2019-6, Center for Retirement Research.
    5. Jonathan Cribb & Carl Emmerson, 2020. "What happens to workplace pension saving when employers are obliged to enrol employees automatically?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(3), pages 664-693, June.
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