Choosing between subsidized or unsubsidized private pension schemes: a random parameters bivariate probit analysis

Christian Pfarr and Udo Schneider

MPRA Paper from University Library of Munich, Germany

Abstract: In 2002, the German government tried to increase private old-age provisions by introducing incentives such as supplementary subsidies and tax credits. Since then, the so-called “Riester pension” has grown in popularity. Apart from subsidized pension plans, unsubsidized private pension insurances as an instrument for old-age have been enormously important for a long time. With data for the years 2005 to 2009 from the German SAVE study, we analyze whether the decision for a “Riester pension” is independent of the decision for unsubsidized private pension insurance using methods for simultaneous equations. Our estimation results indicate that decisions on “Riester” and private pensions are not independent and the proposed random-parameters bivariate probit model results in efficiency gains compared to single probit estimations. Regarding governmental subsidies, we find positive incentive effects of child subsidies whereas low income earners are not induced to increase their old-age provisions. Further, there is strong evidence for a “crowding-in” among alternative assets as well as a significant effect of demand inducement. Finally, considering the saving motives, individuals do not take a “Riester pension” because of securing pension payments only but to pick up granted subsidies.

Keywords: subsidized pension; saving incentives; bivariate probit panel (search for similar items in EconPapers)
JEL-codes: D12 H31 I38 (search for similar items in EconPapers)
Date: 2011-03-07
New Economics Papers: this item is included in nep-age and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:29400

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