The Decision to Save: Extensive and (Subsidized) Intensive Margin on Household Participation in Germany?s Third-Pillar Pension

This paper provides new evidence on Germany?s third?pillar pensions by separating market entry from within-pillar product choice and by introducing an aggregated subsidized margin that summarizes selection into Riester/Basis relative to purely unsubsidized Private plans. Using recent, nationally representative microdata (2019?2023), we estimate a two-stage framework: a binary participation model and, conditional on entry, a multinomial product-choice mode. Two contributions are distinctive. First, we provide the first unified evidence on Basis and unsubsidized Private contracts alongside Riester, moving beyond a Riester-centric literature. Second, our subsidized margin offers a policy-relevant measure of how fiscal incentives reallocate choices within the pillar, invariant to base-category normalization. At the extensive margin, participation is governed primarily by labor-market attachment and position in the income distribution. Households with stable earnings and strong links to formal employment are much more likely to enter, while low and irregular earners remain underrepresented. Participation exhibits a reverse gender gap: women outpace men in third-pillar take-up. At the intensive margin, choices track institutional design. Higher incomes tilt selections away from allowance-based contracts and toward tax-deductible alternatives, with the self-employed showing a marked preference for the latter. On the subsidized margin, income effects largely offset in the aggregate, yet the nature of earnings remains decisive. These findings point to policy that targets entry frictions and preserves product neutrality because participation and not within-pillar reallocation is the margin on which the system binds.