Why mandate young borrowers to contribute to their retirement accounts?

  • Torben M. Andersen
  • Joydeep BhattacharyaEmail author
Research Article


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.


Mandated pensions Time inconsistency Social security Dynamic efficiency 

JEL Classification

H 55 D 91 D 03 E 6 



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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of Economics and BusinessAarhus UniversityAarhus VDenmark
  2. 2.Department of EconomicsIowa State UniversityAmesUSA

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