To compensate for this decrease the young savers will increase the amount they put aside for retirement.
Furthermore, as noted above, the increase in bond holdings by the savers is exactly equal to the reduction in bond purchases by the pension authority.
This implies lower costs for the pension savers compared with direct investments in mutual funds in the traditional market.
In that situation, the savers can reshuffle their portfolios to keep their aggregate (private plus government held) holdings unchanged.
When returns are high, pension contributions increase, rather than decrease, as we would expect from the behavior of target savers.
They also facilitate the flow of resources from savers to investors in the presence of market imperfections.
If all members of society were savers and g=1, such a change would have no macroeconomic repercussions.
Such a strategy could address both the insecurity of potential savers and the insecurity of those unable to save.
