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Profitability of pension contributions – evidence from real-life employment biographies

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  • SCHRÖDER, CARSTEN

Abstract

Micro-econometric intra-cohort profitability analyses of pay-as-you-go (PAYG) pension contributions are rare. We use representative employment histories of German PAYG pension insurants retiring in year 2005 to examine the determinants of the profitability of contributions using nominal internal rates of return (IRR) as measure. When future nominal pension entitlements are frozen at today's level, average IRR is about three percent. It increases in beneficiaries' remaining life expectancies at retirement and in the length of non-contribution periods resulting, for example, from child care. Interestingly, IRR is decreasing in insurants' earnings capacity, indicating that the system entails an intra-cohort progressive element.

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  • Schröder, Carsten, 2012. "Profitability of pension contributions – evidence from real-life employment biographies," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(3), pages 311-336, July.
    • Handle: RePEc:cup:jpenef:v:11:y:2012:i:03:p:311-336_00
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    Cited by:

    1. Haan, Peter & Kemptner, Daniel & Lüthen, Holger, 2020. "The rising longevity gap by lifetime earnings – Distributional implications for the pension system," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    2. Holger Lüthen, 2016. "Rates of Return and Early Retirement Disincentives: Evidence from a German Pension Reform," German Economic Review, Verein für Socialpolitik, vol. 17(2), pages 206-233, May.

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    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D39 - Microeconomics - - Distribution - - - Other
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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