Let us start at the beginning….what is Libertarian Paternalism?
Well it is a subtle way of making people towards rational choices. For example when a person joins for employment the employment form includes an AUTO sign up for an index fund. Say NPS to the extent of 3% of basic salary. The employer also contributes a similar amount.
Then the amount keeps increasing going up to a maximum of 10% over a period of time. This of course happens by appropriating a greater percentage of the increments and pushing that amount to the NPS fund. This will ensure that immaterial of the IQ of the person who is working a nice round corpus is getting ready for retirement. Sure some of this could be available for a medical emergency, but if I were a big company – say with 50,000 employees, I would get the asset management company to provide me with a medical cover thrown in for giving them the mandate for fund management. Rest assured, at 0.25% amc (and no trail fee to be paid) the amc will bite.
Will it work? I think yes. It will work. Yes there will be some resistance of kids saying ‘I know how to handle it myself’ or ‘it is so far away why bother’….but it will fly. Why am I saying this? Just sheer inertia of having to fill up a form to STOP what is going on is too much of a hassle. Companies can make the opting out more difficult by saying ‘get a declaration from your spouse…saying she understands what it entails’….etc. can make it more sticky.
Stopping could be made easier after the person reaches a particular age – or showing proof of other saving habits. Is this legal? I think yes, it should pas muster especially if it is with the NPS – thus ensuring portability, security, etc.
This is being experimented with in the US and reasonably successfully too!
If such things start happening, rest assured index scrips will gallop. Great time to be in well managed funds – the bigger the index fund, the easier it will be to beat it…..I would rather index myself against the MSCI India Index 🙁
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