This paper empirically investigates the effect of mandatory pension contributions on firm innovation. We find that firms with mandatory contributions experience a decline in their innovation output. This effect is stronger for firms with financial constraints, more short-term institutional investors, higher levels of managerial short-termism. We also document that mandatory pension contributions result in a reduction in firm research and devel-opment expenditures and an increase in firm debt-to-asset ratio. Moreover, we report that firms with mandatory contributions increase their alliance activities to pursue innovation with external partners.