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Title:Profitability of pension contributions: Evidence from real-life employment biographies PDF Logo
Authors:Schröder, Carsten
Issue Date:2010
Series/Report no.:Discussion papers // German Institute for Economic Research 1057
Abstract:Micro-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.
Subjects:Pay-as-you-go
pensions
rate of return
redistribution
employment biography
JEL:D02
D14
D39
D91
H55
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des DIW
DIW-Diskussionspapiere

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