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Why Mandate Young Borrowers to Contribute to their Retirement Accounts?

Torben M. Andersen and Joydeep Bhattacharya ()

No 6577, CESifo Working Paper Series from CESifo Group Munich

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: H55 D91 D03 E60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-ltv, nep-mac and nep-upt
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
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Working Paper: Why mandate young borrowers to contribute to their retirement accounts? (2016) Downloads
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