Profitability of Pension Contributions: Evidence from Real-Life Employment Biographies
AbstractMicro-econometric intra-cohort profitability analyses of pay-as-you-go (PAYG) pension contributions are rare. We use representative employment histories of a birth cohort of German PAYG pension insurants retiring in year 2005 to econometrically examine the determinants of the profitability of such contributions using nominal internal rates of return (IRR) as profitability measure. When future nominal pension entitlements are frozen at today's level, average IRR is slightly above three percent. At the same time, IRR differs substantially across beneficiaries. IRR is increasing in beneficiaries' remaining life expectancies at retirement and in the length of non-contribution periods resulting, for example, from child care or care for an ill partner. Due to survivor pensions, married insurants benefit from higher IRR as compared to the non-married. Interestingly, IRR is decreasing in insurants' earnings capacity, indicating that the system entails an intra-cohort progressive element.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1057.
Length: 23 , Anh. p.
Date of creation: 2010
Date of revision:
Pay-as-you-go; pensions; rate of return; redistribution; employment biography;
Other versions of this item:
- Schröder, Carsten, 2012. "Profitability of pension contributions – evidence from real-life employment biographies," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(03), pages 311-336, July.
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- D14 - Microeconomics - - Household Behavior - - - Personal Finance
- D39 - Microeconomics - - Distribution - - - Other
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-AGE-2010-09-25 (Economics of Ageing)
- NEP-ALL-2010-09-25 (All new papers)
- NEP-LAB-2010-09-25 (Labour Economics)
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