On the Efficiency of Mandatory Retirement Savings Under Endogenous Borrowing Constraints

Abstract

Mandatory contributions to retirement savings accounts may tighten existing borrowing constraints, forcing individuals to forgo profitable investment options. This welfare-detrimental effect can be offset if retirement savings are allowed to serve as collateral. Moreover, some credit market imperfections may disappear altogether if this later policy is combined with a pension system with unconditional basic savings.

Keywords: pensions, mandatory savings, borrowing constraints

JEL Classification: D14, E21, G11, H55