Designing Pension Plans According to Consumption-Savings Theory

Kathrin Schlafmann; OFER SETTY; Roine Vestman

doi:10.1093/rfs/hhae061

Designing Pension Plans According to Consumption-Savings Theory

Kathrin Schlafmann¹; OFER SETTY²; Roine Vestman³

¹ Copenhagen Business School , Denmark, DFI, and CEPR · ² Tel Aviv University · ³ Stockholm University , Sweden and CEPR

Review of Financial Studies 2026 open access

Abstract We derive optimal characteristics of contribution rates into defined contribution pension plans based on consumption-savings theory. Contribution rates should increase with age and decrease with the balance-to-income ratio. Using Swedish registry data, we show that on average, individuals save according to those principles. However, almost half of the population behaves hand-to-mouth and does not undo the mandated constant contribution rates. In a quantitative model, designing contribution rates to follow the principles implies a 1.8% welfare gain and less dispersed replacement rates, while maintaining the same average replacement rate. Results are robust to various sources of model misspecification, including temptation preferences.

DOI: 10.1093/rfs/hhae061
Volume: 39 (6)
Pages: 1823-1876
Language: en
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