The impact of discontinuity - how unemployment shapes outcomes in voluntary pension schemes

Unemployment can have severe consequences for old-age pensions. For mandatory, earnings-related pensions, negative pension outcomes are self-evident and well researched. However, the increasing importance of occupational and individual pension schemes implies that we need to learn more about the impact of unemployment on voluntary pensions. They follow a different, two-fold accrual logic: The first step concerns participation, and the actual process of pension generation is only the second step for participants. The case study for Germany applies a two-step modelling approach to account for this process and shows that unemployment has a significant impact on both parts of the accrual process. It leads to lower participation rates and for participants to lower entitlements. Long unemployment at an early stage of the life course seems to have particularly negative effects. The results point to severe challenges for policy makers to ensure adequate old-age incomes with the current German pension system set-up.