Taxing Pensions and Retirement Benefits in Germany

The paper motivates and describes the tax treatment of German retirement benefits and pensions after the 2005 reform initiated by the German Federal Constitutional Court. The main question is whether this reform has produced a “level playing field” among the many instruments generating retirement income in Germany. The paper briefly outlines rational principles for the taxation of retirement benefits and pensions and compares these with current practice in Germany and abroad

Actuarial Adjustments, Retirement Behaviour and Worker Heterogeneity

The behavioural response with respect to actuarial adjustments in the German public pension system is analysed. The introduction of actuarial adjustments serves as a source of exogenous variation to estimate discrete time transition rates into retirement. The analysis is conducted on administrative data from social security records and on survey data in a comparative scenario. Probability mass points that occur for institutional reasons and due to social norms are controlled for. Moreover, worker heterogeneity is taken into account, which has not been addressed in the previous literature. The results show that on average retirement is postponed by five months due to financial incentives via actuarial adjustments. However, this response is about 40 per cent lower for manual workers compared to non-manual workers which indicates that their retirement income may deteriorate.Die Studie untersucht die Verhaltensreaktion auf finanzielle Anreize hinsichtlich des Renteneintrittsalters. Die Einführung versicherungsmathematischer Abschläge dient als Quelle exogener Variation, um Renteneintrittsraten in diskreter Zeit zu schätzen. Die Analyse basiert auf Administrativdaten der Deutschen Rentenversicherung (VSKT) sowie Umfragedaten des Sozioökonomischen Panels (SOEP) um mögliche Unterschiede in den Ergebnissen aufgrund der Datenmenge und Datenqualität in einem komparativen Szenario zu kontrollieren. Ein besonderer Fokus in der Analyse des Renteneintrittsverhaltens liegt auf individueller Heterogenität hinsichtlich des physischen Anspruchs ehemals ausgeübter Berufe. Die Ergebnisse zeigen, dass die Einführung versicherungsmathematischer Abschläge in Deutschland zu einer durchschnittlichen Verzögerung des Renteneintritts um fünf Monate führt. Diese Reaktion auf finanzielle Anreize ist bei Individuen mit ehemals physisch anspruchsvollen Berufen jedoch etwa 40% niedriger

"Better Safe than Sorry" - Individual Risk-free Pension Schemes in the European Union - Macroeconomic Benefits, the Mobile Working Citizen's Perspective and Why Nots

Variations between the diverse pension systems in the member states of the European Union hamper labour market mobility, across country borders but also within the countries of the European Union. From a macroeconomic perspective, and in the light of demographic pressure, this paper argues that allowing individual instead of collective pension building would greatly improve labour market flexibility and thus enhance the functioning of the monetary union. I argue that working citizens would benefit, for three reasons, from pension saving in a risk-free savings account. First, citizens would have a clear picture of the accumulation of their own pension savings throughout their working life. Second, they would pay hardly any extra costs and, third, once retired they would not be subject to the whims of government or other pension fund managers. This paper investigates the feasibility of individual pension building under various parameter settings by calculating the pension saved during a working life and the pension dis-saved after retirement. The findings show that there are no reasons why the European Union and individual member states should not allow individual risk-free pension savings accounts. This would have macroeconomic benefits and provide a solid pension provision that can enhance mobility, instead of engaging workers in different mandatory collective pension schemes that exist around in the European Union

The Multinomial Multiperiod Probit Model: Identification and Efficient Estimation

In this paper we discuss parameter identification and likelihood evaluation for multinomial multiperiod Probit models. It is shown in particular that the standard autoregressive specification used in the literature can be interpreted as a latent common factor model. However, this specification is not invariant with respect to the selection of the baseline category. Hence, we propose an alternative specification which is invariant with respect to such a selection and identifies coefficients characterizing the stationary covariance matrix which are not identified in the standard approach. For likelihood evaluation requiring high-dimensional truncated integration we propose to use a generic procedure known as Efficient Importance Sampling (EIS). A special case of our proposed EIS algorithm is the standard GHK probability simulator. To illustrate the relative performance of both procedures we perform a set Monte-Carlo experiments. Our results indicate substantial numerical e?ciency gains of the ML estimates based on GHK-EIS relative to ML estimates obtained by using GHK

Should I Stay or Should I Go? The Role of Actuarial Reduction Rates in Individual Retirement Planning in Germany

This paper provides a two-part empirical analysis on how actuarial reduction rates for early retirement affect current pension payments in Germany and to what extent the existence and the magnitude of these reduction rates influence people s retirement planning. First, by evaluating a large dataset of administrative records it becomes evident that early retirement shows a high prevalence at the extensive and at the intensive margin, in particular for women and those with a medium income. Second, a special question in the 2011 SAVE survey is exploited where respondents are offered a hypothetical deal for early retirement if in turn they were willing to accept an actuarial reduction on their pension. It becomes evident that the maximum reduction rate people would be willing to accept is widely dispersed and on average approximately double the current legal rate. Furthermore, respondents seem to make consistent choices and high endowment of financial assets plus additional old age provision, high subjective life expectancy, bad health as well as being a man are positively correlated with the actuarial reduction rate the respondents would accept at most. Given that policymakers aim to raise the average retirement age, the results emphasize the need for a simultaneous increase of not only the statutory retirement age but the minimum early retirement age as well. This becomes necessary since actuarial reduction rates cannot be expected to change the retirement behavior of workers with a strong preference for early retirement or those who rely on social benefits

Who is Saving Privately for Retirement and How Much? - New Evidence for Germany

Due to demographic change the replacement rates of the German statutory pension scheme will decrease over the next decades. Voluntary savings for retirement will therefore gain more and more relevance in order to maintain one's standard of living during retirement. This article examines the savings behavior for retirement on an individual level in Germany. As a first step the decision to save at all is analyzed, showing that the main determinants for saving are personal income as well as the disposable household income. Furthermore migrants and individuals living in the Eastern part of Germany turn out to be less likely to save additionally privately for retirement. In a second step the chosen gross saving rates are analyzed using a Tobit, a lognormal hurdle model and a Type II Tobit Model. The results suggest that the decisions to save at all and about the saving rate are independent of each other leading to a loss of information if only a standard Tobit model is used. For example personal income increases the probability to save for retirement but decreases the resulting saving rate. Modelling both decisions separately therefore leads to a better understanding of the determinants of saving for old-age

What factors influence training opportunities for older workers? Three factorial surveys exploring the attitudes of HR professionals

The core research questions addressed in this paper are: what factors influence HR professionals in deciding whether to approve training proposals for older workers? What kind of training are they more likely to recommend for older employees and in which organizational contexts? We administered three factorial surveys to 66 HR professionals in Italy. Participants made specific training decisions based on profiles of hypothetical older workers. Multilevel analyses indicated that access to training decreases strongly with age, while highly-skilled older employees with low absenteeism rates are more likely to enjoy training opportunities. In addition, older workers displaying positive performance are more likely to receive training than older workers who perform poorly, suggesting that training late in working life may serve as a reward for good performance rather than as a means of enhancing productivity. The older the HR professional evaluating training proposals, the higher the probability that older workers will be recommended for training. keywords: training; older workers; HR professionals; factorial survey; multilevel model

Differential Income Taxation and Household Asset Allocation

This paper empirically investigates the effects of differential income taxation on households' portfolio choice and asset allocation applying a two-stage budgeting model of asset demand to German survey data. The model is structured into the discrete asset choice and the continuous asset choice, and the marginal income tax rate is simulated in a module of income taxation. Households that face relatively higher tax rates are found to have relatively greater demand for tax-privileged assets than households in the lower tax brackets. The higher the marginal tax rate the greater demand is for non-owner-occupied housing, for mortgage repayments, for building society deposits, for stocks, for insurances, and for consumer credits, whereas demand is lower for owner-occupied housing, bank deposits, and bonds