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Family background and the decision to provide for old age: a siblings approach

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Abstract

The Riester pensions in Germany provide helpful evidence to better understand the determinants of and the barriers to the demand for old-age provision products. The paper argues that families are of key importance in the decision making process to buy such a private pension. Families do not only shape the way we make our financial decisions they can also be a source for cost-effective and reliable information. Depending on certain characteristics some individuals can process this information more easily. Results confirm that individual characteristics, in particular income and education, as well as family characteristics are correlated with Riester ownership. Adding a dynamic element to the analysis I find strong sequential correlations in Riester ownership between siblings. However, these correlations become weaker over time as the number of Riester owners in other social circles grows. Once a critical mass has been reached, positive spillovers can create a social multiplier leading to a higher coverage with private pensions in the future.

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Notes

  1. See Börsch-Supan and Wilke (2004) and Wilke (2009) on the pension reform process in Germany.

  2. See Becker (2004) for a discussion on voluntary versus compulsory systems.

  3. The reform included as simplification of the application procedure for subsidies, a reduced number of certification criteria, a standardized minimum own contribution, improved transparency of products and a different cost structure. For a detailed description see Börsch-Supan et al. 2012.

  4. See Wagner, Frick and Schupp (2007) and Haisken-DeNew and Frick (2005) for a detailed description of the SOEP.

  5. See Ziegelmeyer and Nick (2012) for an analysis of contribution free Riester contracts.

  6. See Schonlau et al. (2010) for a discussion on tracing rules.

  7. Data was extracted using PanelWhiz (Haisken-DeNew and Hahn 2010).

  8. Eligible are all individuals where at least one spouse is an employee subject to social security contributions, pays voluntary social security contributions, is a civil servant or unemployed.

  9. See Kroh (2011) for an analysis of attrition in the SOEP.

  10. Corneo et al. (2010) also compare both data sets. For a description of the SAVE data set, see Coppola and Lamla (2013).

  11. Table 2 displays parental education as reported by the observed individual in order to compare the siblings sample with the overall population. The information might be prone to measurement error.

  12. See Wooldridge (2002) for a discussion on the advantages and drawback of linear probability models. Pfarr and Schneider (2011) use a time-fixed effects logit model to estimate the determinants of Riester ownership. This however would require dropping 806 cases which lack variation in the dependent variable Riester between siblings.

  13. Notation is analogous to Schnabel and Schnabel (2002).

  14. I do not consider whether parents own a Riester as this would require accounting for their eligibility. However, some of the parents have never been eligible as they were already retired when the product was introduced. This would reduce the samples size even further.

  15. Corneo et al. (2009; 2010) consider the introduction of Riester pensions as a natural experiment as by law certain groups are eligible while others are not. Apart from the introduction itself, individuals can become eligible due to e.g. marriage or when entering the labor market after graduation representing such an exogenous reason.

  16. See Singer and Willet (1993) and Jenkins (2005).

  17. I thank one anonymous referee for this valuable comment.

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Acknowledgments

I thank Michela Coppola who has given me advice throughout the project. Moreover, I am grateful to Axel Börsch-Supan, Joachim Winter and Michael Ziegelmeyer for their helpful comments. I have benefited from comments coming from participants at the MEA seminar (Munich), the Annual Meeting of the Austrian Economic Association (Vienna),the German Socio-Economic Panel User Conference (Berlin) as well as the CeRP conference (Turin). Special thanks go to the two anonymous reviewers for their valuable comments and suggestions to improve the paper.

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  1. Munich Center for the Economics of Aging, Max-Planck-Institute for Social Law and Social Policy, Munich, Germany

    Bettina Lamla

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See Figs. 1, 2, 3, and 4; Tables 1, 2, 3, 4, and 5.

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Lamla, B. Family background and the decision to provide for old age: a siblings approach. Empirica 40, 483–504 (2013). https://doi.org/10.1007/s10663-013-9212-4

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