Économie et Statistique n° 441-442 : Pension systems and their reforms; assessments and projections
Impact of Career-Long Individual Earnings Profiles on Retirement Benefits
This study describes a model of career-long earnings profiles for private-sector paid employees and self-employed persons born in 1946, observed in the data from the 2005 sample of contributors to the various retirement funds (Échantillon Interrégimes de Cotisants: EIC). We model the individual profiles so as to estimate, for each person, an average career-long earnings level, the slopes at the start and end of their careers, and the frequency of career “gaps” and exceptional peaks in earnings. At the start of a career, the age-specific average earnings slope is all the steeper for high earners. That is no longer the case in the second half of a typical career (after age 40), when most workers have stable earnings. “Exceptional” earnings (from wages or self-employment)-i.e. deviating sharply upwards or downwards from their trend-are far more common among low earners. At present, the statutory pension fund (régime général) and correlated funds (régimes alignés) determine benefits on the basis of average annual earnings (from wages or self-employment) for the best 25 years rather than over an entire career. One of the effects of the patterns identified above is that this calculation rule should be most advantageous to both the highest and lowest earners. The rule is indeed more favourable for career-long earnings profiles displaying the greatest variability, regardless of whether the fluctuation is due to the rise in earnings with age or to the frequency of steep drops in annual earnings relative to the trend. In practice, however, this mechanism is strongly mitigated by two other provisions: the cap on earnings taken into account in the pension calculation, and the minimum contributory requirement.