Profitability of Pension Contributions: Evidence from Real-Life Employment Biographies

Abstract

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Rates of Return and Early Retirement Disincentives: Evidence from a German Pension Reform

“…The differences between the sexes can be mainly ascribed to women's larger share of transfer points (see Table ). The uneven distribution of transfer points also causes the more heterogeneous results of women (in line with Schröder, ). Variations are caused by, for example, divorces or the number of children.…”

“…The IRR of the pension system is oftentimes compared to capital market interest rates (e.g. Schröder, ). Such comparison reveals that both men and women would have been better off (on average), if they had invested their contributions in – assumedly approximately risk‐free – German Federal Bonds.…”

“…men vs. women). In the inter‐cohort dimension, those comparisons serve as evidence on the relative treatment of cohorts and lifetime redistribution through the pension system (Liebman, ; Schröder, ). Redistributive elements of PAYG‐systems feature, for example, a redistribution from low to high life expectancy and from singles to married couples in case of survivor benefits.…”

“…Notable exceptions are Gustman and Steinmeier () and Liebman (), who look at redistributional effects of the US social security system. The only microdata study on Germany is Schröder (), who looks at the IRR of cohorts 1940–1945 if and only if they retire in 2005 . Hence, the cohorts are included at a different age, preventing an inter‐cohort comparison or a reform evaluation.…”

“…Following Schröder (), individuals with the highest and the lowest IRR (symmetry) are excluded due to extreme outliers at the top. Here, the results are censored at the 97.5% and the 2.5% level.…”