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Profitability of pension contributions – evidence from real-life employment biographies*

Published online by Cambridge University Press:  16 June 2011

CARSTEN SCHRÖDER
CARSTEN SCHRÖDER
Affiliation:
Christian-Albrechts University of Kiel and DIW Berlin (e-mail: [email protected])
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Abstract

Micro-econometric intra-cohort profitability analyses of pay-as-you-go (PAYG) pension contributions are rare. We use representative employment histories of German PAYG pension insurants retiring in year 2005 to examine the determinants of the profitability of contributions using nominal internal rates of return (IRR) as measure. When future nominal pension entitlements are frozen at today's level, average IRR is about three percent. It increases in beneficiaries' remaining life expectancies at retirement and in the length of non-contribution periods resulting, for example, from child care. Interestingly, IRR is decreasing in insurants' earnings capacity, indicating that the system entails an intra-cohort progressive element.

Keywords

D02D14D39D91H55Pay-as-you-gopensionsrate of returnredistributionemployment biography
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 11 , Issue 3 , July 2012 , pp. 311 - 336
Copyright
Copyright © Cambridge University Press 2011

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