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Torben M. Andersen

Why mandate young borrowers to contribute to their retirement accounts?

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Many countries, in an effort to address the problem that 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, the natural borrowers, to save for retirement. Further, present-biased agents 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 lifetime utility increases.

OriginalsprogEngelsk
TidsskriftEconomic Theory
Vol/bind71
Nummer1
Sider (fra-til)115-149
Antal sider35
ISSN0938-2259
DOI
StatusUdgivet - mar. 2021

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