The Design and Welfare Implications of Mandatory Pension Plans

53 Pages Posted: 8 Jul 2019 Last revised: 7 May 2021

See all articles by Linda Sandris Larsen

Linda Sandris Larsen

Copenhagen Business School

Claus Munk

Copenhagen Business School

Date Written: May 7, 2021


In a rich, calibrated life-cycle model, we show that well-designed mandatory pension plans significantly improve the welfare of individuals procrastinating on savings, and even improve most rational individuals' welfare through a return tax advantage and fair annuitization. For a group of heterogeneous savers, in terms of preferences and sophistication, the best plan has contributions of 10% of income from age 30, a glidepath investment strategy, payouts following a variable lifelong annuity, and options to choose a different investment strategy and to modify the annuitization feature. This plan generates an average welfare gain of $299,000 per individual.

Keywords: Retirement savings, life cycle, consumption, investment, annuitization, welfare, procrastination, non-participation

JEL Classification: D14, D15, G11, G41, G51

Suggested Citation

Larsen, Linda Sandris and Munk, Claus, The Design and Welfare Implications of Mandatory Pension Plans (May 7, 2021). Available at SSRN: or

Linda Sandris Larsen

Copenhagen Business School ( email )

Solbjerg Plads 3, A5
Frederiksberg, 2000

Claus Munk (Contact Author)

Copenhagen Business School ( email )

Department of Finance
Solbjerg Plads 3
Frederiksberg, DK-2000


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