Research Colloquium - Designing Pension Plans according to Consumption-Savings-Theory
Wann
Dienstag, 6. Dezember 2022
15:15 bis 16:45 Uhr
Wo
ONLINE
Veranstaltet von
Chair of Finance
Vortragende Person/Vortragende Personen:
Kathrin Schlafmann (Copenhagen Business School)
Designing Pension Plans according to Consumption-Savings-Theory
(with Ofer Setty and Roine Vestman)
Abstract: We derive optimal characteristics of contribution rates into defined contribution pension plans based on consumption savings theory. Contribution rates should be age-dependent and adjust to the balance-to-income ratio. Using detailed registry data on household savings behavior in Sweden we show that individuals adjust savings rates according to these principles. We apply these principles in a quantitative model to design an optimal rule for contribution rates in a mandatory defined-contribution pension plan. Compared to typical rigid designs of contribution rates, our proposed design leads to the same average replacement rate and provides liquidity benefits and insurance against income shocks. The design implies a welfare gain of 1.8 percent in consumption equivalent and reduces the dispersion of replacement rates by more than 40 percent. Our design is robust to time-inconsistent investors.