Question

You have been asked to brief a group of senior policy officials and insurance and financial executives on policy solutions to improve consumer savings practices. With three behavioral economics courses under your belt, you are the resident expert on the issue. What policy recommendations will you offer to incent citizens to save more for retirement? What policies would you recommend leadership avoid? Should different policies be implemented by the state versus private actors? If so, which and how?

Answer 1

A) Policy recommendations to incent citizens to save more for retirement-

The citizens can be incentivized to save more for retirement by-

1) campaigns, making citizens aware of the benefits and need for retirement savings.

2) propagating government schemes for retirement savings plans.

3) providing people with some benefits in cash or kind when they sign up for some retirement saving scheme so that they are encouraged to save more.

4) Employees should be made aware of the benefits of retirement savings by their companies and encourage them to save more for retirement by offering some employee benefits for the same.

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B) Policies leadership should avoid

Leadership should avoid all such policies which require one-sided investment from the leadership with fewer returns. For eg- policies that require the leadership to give a specific amount of money to citizens after their retirement with hardly any investment from the citizens. This policy is risky as the investment of the leadership can be huge and returns from it are very less.

Also policies which will require intense paperwork by the citizens should be avoided. Many citizens will take a step back as it will be a complicated process for them. Policies should be hassle free.

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C) Should different policies be implemented by the state versus private actors-

Different policies can be implemented by the state and private sectors separately. A citizen can show an inclination towards policies by the state or the private sector, as per his/ her convenience, needs and comfort.

The state can introduce general policies which can be availed by all the citizens with different income brackets. Whereas the companies in the private sector can introduce policies for their employees.

• The state can implement the following policies-

1) A citizen from the lower or middle group can deposit some part of his income with the government every year, which will keep increasing by some rate of interest every year. Once that citizen retires, he/she can withdraw the money saved during the years.

2) The state can implement insurance plans like health plans for the benefits of citizens after retirement. Citizens can invest in such insurance schemes by the government which will help them after retirement.

• The private sector can implement the following policies-

1) Offering the employees various retirement plans as an employee benefit.

2) Offering the employees a retirement plan account where every month, a small part of the income of the employee will be transferred to the retirement account. For eg- If the employee is earning 100$, then deducting 10$ every month will save enough by the time the employee retires. If the employee switches his job, he can continue to get the money deposited in the already opened account for retirement savings or get the account transferred under the other company.

3) Private banks can offer various retirement plans and insurance schemes to people where a citizen can be offered investment packages. For eg- if a citizen gets his/her bank account open with the bank, he can get an after retirement health insurance plan a low cost.