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.
Highlights
Demographic change and the ageing of societies have become major challenges to industrialized countries
In order to overcome the problems of existing measures of intra-generational redistribution in PAYG pension systems, we propose a novel index that relates paid contributions to resulting benefits
Our index follows along similar lines: it provides a standardized global measure of intra-generational redistribution by relating contributions and the resulting entitlements to a benchmark, which rests on the ratio of the distributions of ideal Bismarckian and Beveridgean pension schemes
Summary
Demographic change and the ageing of societies have become major challenges to industrialized countries. Our index, which is reminiscent of the Suits index for tax progression (Suits, 1977), describes the actual policy design at any given point in time and can accentuate the effects of policy changes It relates work-life contributions to the pension scheme and the resulting benefit entitlements to a benchmark, which rests on the ratio of two hypothetical benefit distributions resulting from idealized pension systems, one with flat benefits and one with earnings-proportional benefits. Our novel measure of intra-generational redistribution in pension systems works in a similar direction but avoids the problems of existing measures It does so by relating work-life pension contributions and benefit entitlements to a benchmark that rests on the ratio of idealized Beveridgean and Bismarckian benefit distributions.
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