Here in Denmark we pretty much have "forced" retirement saving. Almost everybody in regular employment pays about $15 a month plus 12% of their monthly salary into a pension fund. [1]

You can save more on the side, but not less.

Why would a country do this?

I think there are two major drawbacks to this.

  1. People have different tastes and needs. Some people might want to spend more money now, while others may be aiming for a much more uniform distribution of income. Why prevent people from living according to their tastes and needs?

  2. Risk is a factor. The return from the investments may change due to economic factors, the retirement age and tax rules may change due to political factors, and so on and so forth. Most people work from their 20s until retirement in their 60s and 70s. That's a period of 40-50 years, over which so much can change, so taking away people's income now and promising them you'll pay them back so many decades later is a promise with too much variability and risk involved, and people have different risk aversions. The forced retirement system ignores this risk aversion and pretends every population member is identical.

What are the pros?

[1] To be precise, you only pay 4% of your salary into the pension fund, and your employer pays the remaining 8%, but it's still kind of the same thing, because we could imagine the employer could just give me those 8% as a salary instead of putting it in my pension fund.

  • 12
    Clarifying comment: Are you generally asking for "forcing to save for retirement", or is this about the particular Danish system with a pension fund? There's different pros and cons to the different technical implementations, but of course you could be asking the general philosophy of the idea, no matter how implemented.
    – FooBar
    Commented Apr 20, 2018 at 15:05
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    It should be noted that the retirement saving is not forced by law, and nothing prevent you from getting a job without a pension payment plan. It is just something that almost all companies offer as part of the job payment.
    – MTilsted
    Commented Apr 20, 2018 at 17:38
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    Lots of comments deleted. Please don't try to answer the question with comments. If you would like to answer, please write a real answer which adheres to our quality standards.
    – Philipp
    Commented Apr 20, 2018 at 18:26
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    More comments deleted. This is not the place to complain about the retirement system in your country either.
    – Philipp
    Commented Apr 23, 2018 at 7:19
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    @Jeremy Banks: “This question has not received enough attention”? I guess “enough” is purely subjective, but this question surely has received a lot of attention …
    – chirlu
    Commented Apr 24, 2018 at 21:25

17 Answers 17


Old people starving is bad.

There exist many people who don't bother with financial planning and they might end up without enough to live on when they are too old to work. By forcing a pension you avoid anyone having to work until they die, or dying shortly after they can't work.

Many of these social programs also divert funds to other people who need assistance, and by bundling it with a pension system it is less obnoxious to the tax payers.

Outlawing skydiving or smoking as retirement plans (jokes on him - I'll be dead by then) is of course a cost, but most people prefer improving the conditions of the people who are worst off.

  • 7
    Source on 'Many of these social programs also divert funds to other people who need assistance.'? AFAIK Nordic welfare states have these mandatory pension systems strictly for pension and other social programs are funded from government budget.
    – Communisty
    Commented Apr 20, 2018 at 7:01
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    @Communisty Based on the comments, it seems that in Sweden most of the money being collected is being used to finance current pension payments rather than put towards the contributors' retirement. If that's not "diversion" I don't know what is. And I'm pretty sure Sweden is not alone in this regard.
    – David
    Commented Apr 20, 2018 at 13:32
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    @David The government don't require these plans, and they are managed by private pension companies. The reason the original poster feels they are "forced" is that pension as fixed part of payment for jobs is such an normal thing in Denmark that it's difficult to find a job which don't offer part of the salary as pension payment.
    – MTilsted
    Commented Apr 20, 2018 at 17:43
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    Take it to chat. To add a clarification to the answer, The government has a duty to provide for retirees under this plan is not true in the United States. The US government is under no legal obligation to allow a person to draw from Social Security. Please clarify in your answer which country you are speaking about.
    – user20690
    Commented Apr 20, 2018 at 21:38
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    @Stephan The question is about Denmark so it is not clear what the USA have to do with anything. I do not understand your request for clarification.
    – user5097
    Commented Apr 23, 2018 at 14:58

If your country also has a welfare system, and someone doesn't save for their retirement, they'll end up on welfare when they stop working. So the government is going to have to pay their expenses either way. The forced retirement savings ensures that this won't all come out of public funds, but will instead come from money they put into the system earlier.

One could argue that citizens who save on their own should be able to opt out of the government pension system. But this would likely be a record-keeping nightmare. The government also probably guarantees a certain payout in their system, few investments can provide similar guarantees. If you lose all your retirement savings due to poor choices, you'll end up on the dole and the government will have to make up for these bad decisions.

Some countries are going with an in-between strategy. Rather than force everyone into the government system, they provide tax benefits for individual retirement savings. However, as seen in systems like the US's IRA and 401(k) systems, too many people don't choose to participate in these plans. So what some countries have started doing is making automatic contributions from payrolls to such plans by default, while allowing people to opt out if they want. Behavioral economists have found that inertia is strong in most people: if you have to make an active decision, you often won't (unless you're forced). So in an opt-out system, most people stay in; in an opt-in system, many people stay out. It's still technically voluntary, but participation rates are generally much higher.

In the US we have both: all employees are required to contribute to Social Security, and we have tax-advantaged retirement savings programs. But the latter are opt-in, so as I mentioned above, participation rates are relatively low. According to CNBC:

the vast majority of Americans have under $1,000 saved and half of all Americans have nothing at all put away for retirement.

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    @David Foerster: I guess I was a bit short, but I wanted to mention the term for what is described in the first paragraph.
    – chirlu
    Commented Apr 20, 2018 at 9:06
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    @Luaan In the US you can invest IRA funds in almost anything. 401k plays provide an employer-selected list of investments, usually a suite of funds from companies like Fidelity or Vanguard.
    – Barmar
    Commented Apr 20, 2018 at 21:38
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    @Luaan And while no one can absolutely guarantee anything, governments are generally in a better position than any private investment company. What's safer than US Treasury Bonds?
    – Barmar
    Commented Apr 20, 2018 at 21:39
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    @Barmar You're missing the fact that Social Security is a form of redistribution of wealth. It is a progressive tax in that your benefits increase slower than an increase in earnings. Read Social Security Actuarial Note 5, the rate of return drops from 6.6% for a very low earner to 0.68% at the maximum taxation level.
    – user71659
    Commented Apr 22, 2018 at 8:31
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    Debating the implications of a world where social security is different does not help this question/answer. The question asks "why do it?" and @Barmar answered that nicely.
    – user10303
    Commented Apr 22, 2018 at 13:56

You're approaching this with a completely skewed frame of mind. The people, through its elected representatives, decided to pool together their money so that anyone can afford retirement. This is pretty far from the impression you seem to have of a government stealing the money of its citizens for nefarious reasons.

This is one of the main pillars of social security. Social security is a fundamental human right, as outlined in Article 22 of the Universal Declaration of Human Rights:

Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality.

What does it mean? It means that if you have an accident at 60 years old, then you don't have to worry about spending your life savings to pay for treatment and then starve when you finally retire. It means that you don't need a degree in finance to invest your money wisely and make sure you're not left with peanuts when you retire. It means that you don't have to live your whole life with the fear of what's going to happen if you haven't saved enough. It means that you can live in a country where old people aren't starving or living in squalor, that you don't have to see old homeless people begging for money in the streets every day when you go to work or shopping. It means that people who haven't the possibility of saving during their life aren't condemned to die when they get fired from their minimum wage job for being too old.

It is also clearly less risky than everyone randomly investing their money. By pooling together, you can afford to pay investing experts to know what to do, and you can invest money in such a way that it benefits the national economy, instead of just seeking the highest return on investment no matter the cost for others.

Now maybe it's more important for you to live according to your "tastes and needs", but the people of Denmark decided together that they preferred the human right called "social security".

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    Comments are not for extended discussion; this conversation has been moved to chat.
    – yannis
    Commented Apr 22, 2018 at 10:23
  • I think this answer would have been better with a citation for the claim that the UDHR mention of "social security" is supposed to be interpreted as "pension income after the end of one's working life" as opposed to, say, "security in social aspects of one's life", because the two pretty clearly are not the same thing (though they can be related). I feel it noteworthy that early in the sentence it is spoken of "social security"; later in the same sentence, "economic rights" are considered sufficiently separate from "social rights" to be listed separately.
    – user
    Commented Nov 11, 2018 at 17:29

Simply put, when people are too old to work, they still need to live somewhere, they need to eat, and they need medical care.

The alternatives to forcing people to save are:

  1. Let people who run out of money die, or kill them outright.
  2. Support people who run out of money at taxpayers' expense.
  3. Use reverse inheritance to get relatives to pay for them.
  4. Regularly hand out fixed amounts of money to all retirees.

The first option is rather unpopular, and the second option creates a ridiculously strong incentive for people to spend - or hide - their money. The third option comes with a ton of issues, the most obvious ones being it only covers some of the population, drives wealthy taxpayers with poorer relatives out of the country, and plenty of relatives will want to or have to cut corners to refuse decent living conditions. The fourth option is really the "force people to save" system looked at from a slightly different perspective.

  • Depending on your perspective, the second option is basically what is happening in OP's country (and many others). If you're not earning wages and paying taxes then you're also not paying into the pension fund described, otherwise everybody pays. The only difference between this and other taxes is that this one is specifically designated for one purpose - the money can't be used for things like infrastructure or going to war, it has to be used for paying those who have retired.
    – CactusCake
    Commented Apr 20, 2018 at 19:52
  • @CactusCake If that is actually the case, mind you - no idea how it is in Denmark. We also have "social and health insurance" (read: taxes), but they're just put into the same pool as all the other state income - and for at least the past decade, the "income" from the insurance was lower than the social expenses (not that it bothers anyone - it seems we got pretty used to the state budgets always being negative).
    – Luaan
    Commented Apr 20, 2018 at 21:37
  • The fourth option does have substantial differences to forcing people to save, as well. Forced savings (in local currency) would be useless in the Weimar Republic, Zimbabwe or Venezuela. Those people would basically starve (realistically, option 2/4 would be adopted). However, option 2/4 would not have that problem, retirees could get something as soon as the economy was back on track. Commented Mar 4, 2020 at 12:41

1) Many modern societies have decided taking care of their citizens through retirement is a good and necessary thing. They can 'force' citizens to save, or they can just take the money as taxes. Same end result, for the most part. Letting people decide entirely on their own isn't exactly ideal. What do you do with the retiree that decided to blow all their savings before they hit retirement age?

2) All investing carries risk. Long term investing carries significantly less risk. So not sure your premise is accurate.

  • Comments are not for extended discussion; this conversation has been moved to chat. Commented Apr 23, 2018 at 4:41
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    "Long term investing carries significantly less risk.".... which is why the premium on options increases the longer they are valid.... ?? Not of course. Long-term investments carry significantly more risk than short-term investments, because the further into the future we go, the less sure we are about what the world will be looking like by the time that future arrives. It's a simple economic rule that the longer it's going to take, the more return we will want, or the more security (in the form of insurance etc) we will need to compensate for the increased risk. Commented Apr 24, 2018 at 18:13
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    @StijndeWitt we're talking retirement savings where, historically, long term investing has always been the safer strategy.
    – user1530
    Commented Apr 24, 2018 at 19:29

Hard to believe nobody covered this yet.

Government-forced retirement savings has by its nature the nice property of not being lost in bankruptcy. While this doesn't have to exist (we note in the USA, Uncle Sam will gladly collect what it is due from Social Security (the US version of forced retirement savings)), it exists by default and so the lawmakers have to break it intentionally, which would be bad for their reelections.

This, generally, is a good thing for society. Otherwise, some people in their fifties who get into financial trouble for whatever reason would be destitute and unable to work in their seventies and eighties. We don't want that.

  • That's a valid point, but, I feel I should point out, not an answer to the question. That may be a benefit from taxed ("forced") social security but it's not the reason behind social security.
    – userLTK
    Commented Apr 21, 2018 at 0:43
  • @userLTK: It's the reason I don't want to create an opt-out for people currently under 30.
    – Joshua
    Commented Apr 21, 2018 at 1:42
  • "Government-forced retirement savings has by its nature the nice property of not being lost in bankruptcy." Can this be guaranteed in light of the Weimar Republic?
    – jpmc26
    Commented Apr 22, 2018 at 11:37
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    @jpmc26: No. Individual bankruptcy, not government bankruptcy.
    – Joshua
    Commented Apr 22, 2018 at 14:53

Not the government

Here in Denmark we pretty much have "forced" retirement saving. Almost everybody in regular employment pays about $15 a month plus 12% of their monthly salary into a pension fund.

This 15 Krone plus 4% plus 8% of income is not government mandated. It is union mandated. The union for that industrial sector mandates that. You can read more about this on Wikipedia. It is neither government funded nor managed. It is unlike Social Security in the United States.

Denmark does have its own government pension plan. However, this is not it. The government pension plan is funded via taxes and pays out a means tested amount, so well to do people get less (possibly nothing) than poor people do.

It is apparently true that virtually all jobs comes with this plan. However, it is not government mandated. It is just a common benefit that Danish unions negotiate. It is negotiated more broadly than in other countries but not universally. It's also worth noting that the 12% is industry specific. The actual range is 9% to 17%. Presumably the OP is always subject to the 12% because the OP only works in one industry, so the same union applies everywhere.

The entire premise of the question is false. It's not the government. It's the union (and the employers negotiating with the union) that require this.

The irony is that the government probably encourages these plans, albeit short of mandating them. Because people who make enough from their pension plan will trigger the means testing for the government pension plan. So the more that the government can get into this kind of plan, the less the government will have to fund with taxes later.

  • ... but if you can't opt out of this, isn't this defacto a tax? If an armed government goon comes to arrest me if I refuse to send money for X, then X is by definition a tax. Commented Mar 14 at 20:16
  • @JonathanReez you can work in a non-unionised industry. No-one is being arrested for refusing to pay this, because the employer does it automatically
    – Caleth
    Commented Mar 15 at 9:32

Partly it is a form of risk pooling, also known as insurance: not everyone lives to old age, so not everyone spends money in old age. By pooling retirement spending together, the level of spending is made more predictable for each payer.

In the United States, where I live, this program is even titled "old-age insurance." The idea is that you insure against the risk of getting old. Some people never get old, and so never receive the payments; those who do get old may receive more in benefits than they paid in.

The population statistics of the United States show that living into old age is the exception rather than the rule:

Age distribution of the United States

Source: Wikipedia: Demography of the United States

Saving enough money to live to old age is therefore expensive relative to its expected benefit. There is no need to accuse people of poor planning to realize that a rational citizen may well decide that money is better spent on near-term expenses (for example, their children's education) than on saving for an unlikely event. Or, the expense may be beyond what many citizens can afford. Insuring against old age is therefore analogous to insuring against a car accident or other unlikely but expensive event, another area where mandatory insurance coverage is common.

  • I think you are missing a step in your comparison to car accident insurance: Usually, you are only required to be insured against damage inflicted to others, not yourself.
    – chirlu
    Commented Apr 23, 2018 at 21:00
  • @chirlu Good point. I think the analogy holds, though: damage to others is a cost to the person liable, even if uninsured. Granted, the reason for compulsory liability insurance is protection of others against judgment-proof tortfeasors, but one could also say that old-age insurance protects society against dependent old people. I think you are right, though, that the analogy is rough.
    – u23
    Commented Apr 23, 2018 at 22:58
  • The population statistics of the United States show that living into old age is the exception rather than the rule: Misconception. You are reading the chart wrong. See this video (~16min) for more explanation. In short: the people at the bottom simply haven't aged yet. You are seeing the baby-boom slowly moving from the bottom to the top. Pick a chart 50 years into the future, or 100 years into the past and it will look very different. The past 100 years were exceptional in this respect. Commented Apr 24, 2018 at 18:21
  • Note, by the way, how the very bottom is actually smaller than the age groups above. This chart is already slowly converting towards an inverted pyramid. In 50 years, the layers at the top will be bigger than at the bottom. In another 50 years, this will be more or less a vertical tower. We already know this and predict population equilibrium ar circa 2100. In some western countries, this equilibrium is already here. Commented Apr 24, 2018 at 18:24
  • Last comment, sorry. But if you believe that the only reason the layers at the top are so small is that these are the last people that lived before WW2 'dying out', it also explains why social security will become insolvent; look at the enormous amounts of people that will start pulling money out of the system in the coming 30 years! The wide bar at 50-54 is going to keep movng up (becoming smaller on it's way, but not even close to what you might expect from this chart). The bottom layers that need to pay for it are shrinking at the same time. That's the reason. Commented Apr 24, 2018 at 18:29

Although you are referencing Denmark, I believe that you are asking this question generally.

I do make several assumptions:

  1. Many people, left to their own devices, will not save enough to live on in retirement.
  2. Also, Crazy Stuff (TM) can happen, leaving people destitute.
  3. Many nations lack reliable local charity (familial, religious, or otherwise) or see the national level as a community in and of itself. Not everybody has the stereotypical American view of national government as some sort of foreign entity to mistrust and fight against.

Cynically speaking:

  1. If the government owns your retirement money or just a huge chunk of it, then the government has a great deal of power over you.
  2. If the government owns your retirement money, then corrupt officials can greatly benefit by (mis)directing this enormous flow of money to 'funds' managed by their friends. Even 1% skimmed would be very nice.
  3. It's just a tax to support the current elderly people, but people get less upset about it since they don't see it as a tax and hope to benefit from it themselves (later.)

Practically speaking:

  1. The national government then can either let old people starve/freeze to death or pay out. Many people consider the first option unacceptable (citation needed)
  2. If you're going to have to pay anyway, then you might as well just charge people in advance so that the burden on "other" people isn't as harsh.

Generously speaking:

  1. It can increase the power that your citizens wield when negotiating for their retirement plans - billions of dollars can get you much better terms (since fees and such are a huge cost for many retirement plans^)
  2. Having a stable flow of capital (the savings people make for retirement) can encourage businesses to expand, since they will be confident in their ability to find funding/capital.
  3. Fiscal and monetary policy can be easier to manage if you control more of the overall money supply.

You may have noticed that point cynical point #2 and practical point #2 are extremely similar. They differ in whether or not people's money is actually still 'theirs'. As in, if I pay in a million dollars, do I get a million dollars back plus the growth? That kind of system is practical #2. If, on the other hand, all the money goes into a giant fund that only gives back some universal amount, then it's cynical #3 and just a tax.

^ Yes, there are many cheap and effective retirement funds. There are, however, numerous straight-up predatory retirement funds.

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    The government forces people to save for retirement in collective pension funds, but the government does not own your retirement money. You own it, but you can't benefit from it until you retire, and it's managed by pension funds that operate independently from the government. Therefore, this answer is completely wrong.
    – gerrit
    Commented Apr 23, 2018 at 11:14
  • @gerrit Did you read the last paragraph (starts with "You may have noticed"? Or the first sentence?
    – Jeutnarg
    Commented Apr 23, 2018 at 13:36
  • Yes, I read both.
    – gerrit
    Commented Apr 23, 2018 at 14:31
  • @gerrit so you're saying that your unnamed government falls under practical #2, not cynical #2?
    – Jeutnarg
    Commented Apr 23, 2018 at 14:47
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    @StijndeWitt I would consider the statement so obvious that a counter-statement requires proof, not the other way around. But, as some evidence, 1 in 3 Americans (citizens of one of the wealthiest nations on Earth) have no retirement savings at all. I consider these millions of people to be 'many people'. For clarification, the statement is made from the perspective of why a government would implement forced retirement payments, not what to do once such a system is in place - forced retirement payments have nothing to do with the statement, and there is no specific system in question.
    – Jeutnarg
    Commented Apr 24, 2018 at 18:41

First, way too many people are fiscally irresponsible! They would spend all their money and then die in debt.

  1. Old people get to be provided for in the Social Security, Medicaid and/or Medicare
  2. Less taxes for everyone
  3. The money collected is invested, and actually earns money (If a stock is down for say 2 years, the extra money exists so don't sell it until the stock rebounds.)
  4. You don't have to pay 50%+ taxes
  5. We don't have another "great depression"

Every public debt is eventually absorbed by the taxpayers and increases taxes

If we have no social security (or whatever your country calls it) we 10x the homeless elderly who can't feed or care for themselves. Then need medical care, food, and etc. How will this be paid for? In any modern society shooting the elderly or letting them die is totally unacceptable. So now the government still has pay for their care, and the government has to it. Where does the government get money when it needs it from, everyone, up go the taxes.

The biggest down side is the government has an ever increasing debt as it has to pay for more and more elderly. If you pay in advance you're building equity instead of paying for run-a-way debt.

Prior to the enactment of social security, in USA, we had a "great depression" because of many reasons, but including the side effects of having too many poor and homeless people.

I did research and nursing homes are $300-$400 a day. However, if you qualify(you have few assets left) for medicare they negotiate a better deal, and because its government run they have to accept it. Professional in home help $20-$30 per hour depending on the level of needs. Adult day care $50 to $80 a day depending of the level of need.

https://www.ssa.gov/history/briefhistory3.html (warning this brief history isn't that brief! 54 pages!)

State Old-Age Pensions

Following the outbreak of the Great Depression, poverty among the elderly grew dramatically. The best estimates are that in 1934 over half of the elderly in America lacked sufficient income to be self-supporting. Despite this, state welfare pensions for the elderly were practically non-existent before 1930. A spurt of pension legislation was passed in the years immediately prior to passage of the Social Security Act, so that 30 states had some form of old-age pension program by 1935. However, these programs were generally inadequate and ineffective. Only about 3% of the elderly were actually receiving benefits under these states plans, and the average benefit amount was about 65 cents a day.

There were many reasons for the low participation in state-run pension systems. Many elderly were reluctant to "go on welfare." Restrictive eligibility criteria kept many poor seniors from qualifying. Some jurisdictions, while having state programs on the books, failed to actually implement them. Many of the state-passed pension laws provided for counties within the state to opt to participate in the pension program. As a result, in 1929 of the six states with operating pension laws on the books only 53 of the 264 counties eligible to adopt a pension plan actually did so. After 1929, the States began enacting laws without county options. By 1932 seventeen states had old age pension laws, although none were in the south, and 87% of the money available under these laws were expended in only three states (California, Massachusetts and New York).

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    -1. First, you make many strong assertions without anything backing them up (e.g. that this somehow is related to great depressions, or that somehow OP's plan would multiply the homeless 10-fold). You claim that this reduces the taxes needed to be paid by the citizens. But, as far as I know, Denmark is the country in the world with the highest taxes. Of course, it's possible that their taxes would be even higher. The answer is also overly judgemental ("Under your plan", "How does your plan handle this?", "everyone including YOU"). As if OP has nefarious reasons for asking a simple question.
    – Eff
    Commented Apr 20, 2018 at 9:21
  • Deleted the "you" parts.
    – cybernard
    Commented Apr 20, 2018 at 11:47
  • I agree with @Eff, this could be improved with some sources
    – user10303
    Commented Apr 22, 2018 at 14:10

This is too long for a comment, and may well be an answer.

You seem to be asking (despite mentioning Denmark) about forced-savings schemes in general. But the name 'forced-savings' is a frequently a misnomer, particularly as it pertains to risk.

If you save your money to invest in an equity market you are absolutely correct that you are exposed to the volatility of that market. But that's not the only financial product one could purchase, for retirement it would make more sense to purchase an annuity which guarantees a certain income.

But annuities have an adverse-selection problem: the people who buy them (as opposed to other financial instruments) are the ones who expect to live a long time. You can work around that however by buying them in bulk for a diverse population. Many employers do just that: my employer for example gives all of us 3% of income in an annuity savings plan. But the most diverse and numerically stable population around is in fact the entire population.

So comparing a society-wide annuity scheme with self savings is apples-vs-oranges (side note: the debate about privatizing US Social Security frequently confuses this point). The adverse selection problem makes the price of individually-purchased annuities (the closest private-sector analog) overpriced.

Whether the government should be in this business is a matter of taste. But there are real efficiency gains possible when it does set up this sort of system.


It all depends on the kind of safety net you have.

If you have a "let them eat cat food" philosophy, then giving people the "choice" to be irresponsible now does not burden society, financially, later when they are mired in poverty and can't afford to live.

If your safety net takes care of people, as it does in most of the western world, and especially in northern European nations, then someone with the self-control of a second grader would present a disproportionate burden on society when society has to dig into its pockets to make up for their irresponsible choices of the past.

Since those nations have a more robust societal safety net, it makes sense that they'd ask those who will be using it to help to fund it. It costs more, short-term, but there's much greater value and security vs a libertarian dystopia, long-term.

  1. Because even now an average citizen is rather in debt, which means people generally not good with money. Let people roam free without pension savings and by the time they retire we will see a lot more old homeless people. It's better to force them to save for their pension.

  2. Current pension payments from working people provide for retires from the past. When exactly do you cut the rope? Who exactly will be the one who worked all life and never will be paid because pension was cancelled?

  • If I can go into debt then, unless the creditors are going to waive my debts when I retire, you've essentially just changed the 0 mark. There is some amount of debt that corresponds to me having 0 net income upon retirement. For the second, you don't have to do a hard cut. For the US social security program, there may well already be a significant number of people who've already contributed significantly who will face such "soft" cuts without needing anything dramatic happening. Commented Apr 20, 2018 at 2:11
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    "Current pension payments from working people provide for retires from the past." - While common, these flawed systems are not universal. A few rich countries have pension funds. Some even have a pension fund for civil servants.
    – MSalters
    Commented Apr 20, 2018 at 8:19

In many countries the deal is not to save for yourself but to finance the retirement of the current old generation. If you look at it like that, it is clear that this is a deal society accepted as a whole and thus carries as a whole. It also makes clear why it is more safe than you managing your investment privately. Private investments are always prone to economical change - your stock investments may crumble in an economic crisis and be worth next to nothing when you need it. A generation contract guarantees at least a basic level of support. It may be affected by an economic crisis as well, but as long as the society can keep you alive, it will.

In general it doesn't aim at individual optimisation, but in providing a general basis for a secure retirement.


Firstly, governments want to remove the obligation on them to pay for old age pensions.

Secondly, with a significant part of the population approaching or having approached the age where they can retire and claim a pension there are fewer younger people to help pay for such pensions via taxes: income tax and consumption taxes such as value added tax or goods and services taxes.

Thirdly, governments are adopting a user pays attitude where everyone has to provide for their old age.

Fourthly, the effect of compounding interest on savings means the more people save the earlier in their lives, the more they will have at the end of their working lives; assuming all goes well with the ways the money have been invested.


A point not yet mentioned is the volatility of laws and social contracts.

Let's assume we have a generation that makes up for a large part of the society (let's call them "baby boomers", maybe). If we hadn't a social safety net, but had imposed the full responsibility on each single person, what would prevent this generation from spending their money carelessly, and when they grow old, change the laws so that the next generation (which is outnumbered) has to pay their rent?

Having a large number of people threatened by poverty creates a large incentive for these people to change the laws in their favor, even if they profited from them earlier on. If you grant a generation that much freedom and responsibility, it may very well be that the next generation has to pay the price.

  • So why didn't those baby boomers destroy the safety net as soon as they got majority, and then recreated it as they reached retirement age? Why didn't they mandate that nobody can be fired from their job even if they don't do anything at all? Why does the "safety net" survive this volatility you mention? And if "retirees" can make a voting block large enough to allow this, how is that not a totally catastrophic argument against democracy? Is it really OK for two wolves and a sheep to vote on what's for dinner? :)
    – Luaan
    Commented Apr 20, 2018 at 21:50
  • Social security was set up before the baby boomers happened. "Having a large number of people threatened by poverty", FDR started social security in 1935 when the nation was in poverty. I think your final paragraph has some truth in it. When a group or voting block feels threatened by something they will vote accordingly. That might help protect social security (AARP has a lot of political influence), but it's not what made social security come about, or the taxes that pay for it.
    – userLTK
    Commented Apr 21, 2018 at 0:48
  • Can you clarify how this is meant to answer the question of "why"? As it stands, this seems to be more a comment or an invitation to debate [at best].
    – user10303
    Commented Apr 22, 2018 at 14:06
  • 1
    @DoritoStyle Because this is a question of an "intergenerational contract", and in the political debates it plays a role if younger generations believe that they will be fairly treated by older generations (and vice versa). It is just added as an aspect to this question.
    – Thern
    Commented Apr 23, 2018 at 7:50

In fact, unlike squirrel that save the pine seed and help the forest eco-system, the whole pension saving idea is full of flaw, loophole and abuse. It is a complicated topics that no single answer can be universally apply to every country.

In addition, most people simply confuse and mix up social safety net with retirement saving. I.e. Social safety net are an "insurance like" policy that deal with uncontrollable tragedy beyond a single person tragedy. For example, no matter how much a person save (or invest), it is never enough to cover stuff like a terminal illness, tragedy that burn down the house, etc.

Now back to retirement saving.

  1. Cushion for the rainy day.
  2. Reduce the money flow into the market, cushioning the inflation
  3. With the inflation cushion as due to above point, government can print more money openly or sneakily, to help reduce its debt.
  4. To make part of the money flow into financial institution, which allow "better use of fund" for "wealth generation".
  5. Allow some government to collect saving from the people to spend on "future infrastructure development"
  • This doesn’t address the question.
    – chirlu
    Commented Apr 26, 2018 at 9:13
  • @chirlu so you are looking for answer that match "your profiles"?
    – mootmoot
    Commented Apr 26, 2018 at 9:15

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