Why Mandate Young Borrowers to Contribute to their Retirement Accounts?

Torben M. Andersen and Joydeep Bhattacharya

No 6577, CESifo Working Paper Series from CESifo

Abstract: Many countries, in an effort to address the problem that too many retirees have too little saved up, impose mandatory contributions into retirement accounts, that too, in an age-independent manner. This is puzzling because such funded pension schemes effectively mandate the young, who wish to borrow, to save for retirement. Further, if agents are present-biased, they disagree with the intent of such schemes and attempt to undo them by reducing their own saving or even borrowing against retirement wealth. We establish a welfare case for mandating the middle-aged and the young to contribute to their retirement accounts, even with age-independent contribution rates. We find, somewhat counterintuitively, that even though the young responds by borrowing more that too at a rate higher than offered by pension savings, their life-time utility increases.

Keywords: present-biased preferences; mandatory pensions; pension offsets; crowding out (search for similar items in EconPapers)
JEL-codes: D03 D91 E60 H55 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-age, nep-ltv, nep-mac and nep-upt
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Related works:
Journal Article: Why mandate young borrowers to contribute to their retirement accounts? (2021)
Working Paper: Why mandate young borrowers to contribute to their retirement accounts? (2021)
Working Paper: Why mandate young borrowers to contribute to their retirement accounts? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6577

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