This paper exploits a recent reform of private pension schemes in Italy to identify the impact on household saving of tax-favored retirement saving plans. The reform was part of the restructuring of the social security system and was aimed at rising private long-term saving by making pension funds more attractive and convenient. We control for unobserved saver heterogeneity and a central focus is on substitution across saving instruments. We find that the pension fund legislation had a strong effect on the allocation of saving and triggered substantial substitution of non-tax-favored non-retirement wealth for tax-favored pension funds. In contrast, we find that it had little, if any effect on household saving flows. Our findings also suggest that the provision of ‘closed’ pension funds might significantly affect the decision to invest in private retirement schemes.

I argue that the offsetting effect of public pension contributions on household retirement saving depends on how closely the public pension programme imitates a private retirement saving plan (i.e. the ‘actuarial’ content of the public pension programme) — the closer the design of the programme to a private retirement saving plan, the higher the offset. I estimate the determinants of household saving rates in a cross-country panel, augmenting standard measures of public pension programme generosity and cost by indicators that proxy the actuarial component of the programme. These indicators affect saving rates as predicted.