Governments have long used financial incentives to promote savings for retirement. Financial incentives are meant to encourage participation in retirement savings plans and boost overall retirement income by making private savings, as a complement to public savings, more attractive. Historically, tax incentives have been the dominant type of incentive, providing favourable tax treatment to retirement savings as compared to other types of savings. More recently, new types of financial incentives have emerged, which are not linked to the tax system. These non-tax incentives include matching contributions, where governments match the employee’s contribution to the pension account, and fixed nominal subsidies paid into the pension account of eligible individuals.
This publication reviews how countries design financial incentives to promote savings for retirement and considers whether there is room for improvement. Given the cost that financial incentives represent to governments, it is important to verify whether they are still effective tools to promote savings for retirement, taking into account different needs across the population. The publication ends with policy guidelines to help countries improve the design of their financial incentives for promoting savings for retirement.