Measuring intra-generational redistribution in PAYG pension schemes

Abstract

Voters in ageing societies expect pension reforms to be both inter-generationally and intra-generationally fair. In this paper, we propose a global measure of intra-generational redistribution in pay-as-you-go pension schemes as a basis for voters’ evaluations of reforms. Our novel index only requires information on contributions by and pension benefits paid to retirees, enabling us to measure intra-generational redistribution isolated from possible inter-generational redistribution. We rely on the contribution records of approximately 100,000 Germans, who progressed into retirement in 2007–2015, to measure the level of intra-generational redistribution in the German statutory pension scheme (GRV). A recent reform of the childcare benefit provision, which became effective in 2014, confirms the predictions of our index. The reform introduced additional benefits for a substantial subgroup of German mothers, owing to which the index value for women, but not for men, jumps up. Our findings suggests that GRV fulfills the ideal of a Bismarckian pension system without intra-generational redistribution for men, while women benefit significantly from intra-generational redistribution.

Demografía y pensiones: Análisis de los efectos redistributivos

“…En el otro, se sitúan Portugal o Suecia con mayor desigualdad de sus pensiones y un índice de progresividad casi nulo. Klos et al (2022) proponen como indicador de redistribución intrageneracional una variable que proporciona información de en qué medida el sistema de pensiones se acerca a un sistema contributivo puro (a lo Bismarck), con pensiones proporcionales a las contribuciones realizadas durante toda la carrera laboral, o a un sistema igualitario (a lo Beveridge). Alternativamente, también se ha propuesto calcular el coeficiente de correlación entre las contribuciones y las pensiones del conjunto de pensionistas.…”

Rethinking the Contribution-Benefit Linkage in Pay-As-You-Go Retirement Systems Based on Algerian Case

“…On the other hand, various types of inequality can rise within the same generation, and different types and sources of inequality exist. Unequal wages and unequal employment chances translate directly into unequal retirement benefits (Klos et al, 2022;Castanheira & Galasso, 2011).…”

“…The use of the IRR for pension valuation within PAYG systems dates back to Samuelson (1958) and Aaron (1966). It remains widely used for analyzing pension generosity (Diseny, 2006;Reznik et al, 2009;Ben Brahem, 2009;Luthen, 2016), studying inter-and intra-generational redistribution (Klos et al, 2022), and comparing PAYG and fully funded systems returns (Turner, 1998). Because PAYG systems, unlike funded plans, do not obey financial market investments, using the IRR for its evaluation seems inappropriate.…”