DIW-Report: Pension Entitlements Reduce Inequality

  • From David Kläffling
  • Reading duration 2 min

A new report by the German Institute for Economic Research (DIW) shows that pension entitlements make up the majority of the assets held by the poorer half of the population in Germany.

In a recently published DIW study, Charlotte Bartels, Timm Bönke, Rick Gaubitz, Markus Grabka and Carsten Schröder show that, at over 30 percent, pension wealth is the most important component in the wealth portfolio of German households after real estate assets.

As the present value of pension entitlements is particularly relevant for the poorer half of the population (70 percent of their total wealth), the inclusion of pension assets also considerably reduces wealth inequality: the wealth share of the poorer half of the population increases from 2 to 9 per cent, while the shares of the wealthiest (the richest one per cent) and the upper class (90-99 percentile) fall by around 10 and 4 percentage points, respectively.

Normally, net wealth (i.e. financial, business and property wealth less debts and excluding pension wealth) is used as the basis for calculating wealth inequality. The inclusion of pension entitlements improves comparability along two dimension - both between different types of employment within a country (employees, civil servants or the self-employed) and between countries with different pension systems.

Read the whole report here.