What is Forced Savings? Definition of Forced Savings, Forced Savings Meaning and Concept

Forced savings to those who are used by means of coercive power to cover certain needs in the future, currently depriving themselves of making use of these funds for consumption.

Forced savings are the names of those resources that must be used for a function or need, generally intended to cover social security contributions and pensions. For example, contributions and social insurance would be part of forced savings, since the State or some organization obliges to allocate part of personal resources to contribute jointly to social insurance.

Forced savings can be legal or voluntary, but with restricted current availability. Thus, legal in nature would be all taxes (actually, social contributions for tomorrow to have a public pension) paid on the payroll, compensation and the like; While private forced savings are those products contracted either by the individual or by a third party for the benefit of the first. For example, pension plans would be a product of forced savings since contributions are made to collect income in the future. But this fund cannot be made available except in rare and well-founded circumstances, such as a situation of vulnerability.

Examples of forced savings

Another clear example of forced savings is the compensation system of certain countries and companies, which contribute a part of their salary to a bank, but which will not be available until retirement or in the event of dismissal. This concept is known as the Austrian backpack.

A characteristic feature of this type of savings is that, although the individual is obliged to make the contribution or a third party makes it for him, those resources belong to his patrimony, no one takes away the property if not the current usufruct.

Forced saving has spread in recent years as a way to improve the conditions of savers and workers so that they have resources in the future and do not remain in a deteriorated situation. In addition, organizations, public or private, are relieved of potentially high costs in the event of early withdrawal.

In the case of public pensions, the savings are destined to when the person retires, to have the right to a pension, although in practice it is a solidarity system in which current workers finance people who are already out of the labor market.