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Why mandate young borrowers to contribute to their retirement accounts?

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  • Andersen, Torben M.
  • Bhattacharya, Joydeep

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 counter-intuitively, that pitted against laissez faire, mandatory pensions succeed by incentivizing the young to borrow more and the middle-aged to save nothing on their own, in effect, rendering the latter's present-biasedness inconsequential.

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  • Andersen, Torben M. & Bhattacharya, Joydeep, 2021. "Why mandate young borrowers to contribute to their retirement accounts?," ISU General Staff Papers 202102010800001016, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genstf:202102010800001016
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    1. Why mandate young borrowers to contribute to their retirement accounts?
      by Christian Zimmermann in NEP-DGE blog on 2017-02-22 03:27:57

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    Cited by:

    1. Sulka, Tomasz, 2022. "Planning and saving for retirement," DICE Discussion Papers 384, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
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    3. Paul Calcott & Vladimir Petkov, 2022. "Excessive consumption and present bias," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(1), pages 113-134, July.

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