Abstract: We relate household saving to pension reform, to explain the high household saving rates in urban China from a new perspective. We use the exogenous – policy induced - variation in pension wealth to explicitly estimate the impact of pension wealth on household saving, and obtain a significant offset effect of pension wealth on household saving. Our estimations show that pension reform boosted the household saving rate in 1999 by about 6 percentage points for cohort aged 25- 29 and by about 3 percentage points for cohort aged 50-59. Our results also indicate that declining pension wealth reduces expenditure on education and health more than on other consumption items.

Keywords: pension reform, pension wealth, household saving rate, urban China

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