Wednesday, 21 August 2019

The effect of automatic enrolment on debt

a column by John Beshears, James Choi, David Laibson, Brigitte C. Madrian and William Skimmyhorn for VOX: CEPR’s Policy Portal

Automatic enrolment in defined contribution pension plans might be the most common policy application of behavioural economics. But does automatic enrolment increase pension savings at the expense of increased household debt?

This column examines a natural experiment in which the US Army began automatically enrolling its civilian employees in its retirement savings plan. It finds strong evidence against the hypothesis that automatic enrolment increases financial distress and debt excluding auto loans and first mortgages.

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