Mismeasurement of Pensions Before and After Retirement: The Mystery of the Disappearing Pensions with Implications for the Importance of Social Security as a Source of Retirement Support



A review of the literature suggests that when pension values are measured by the wealth equivalent of promised DB pension benefits and DC balances for those approaching retirement, pensions account for more support in retirement than is suggested when their contribution is measured by incomes received directly from pension plans by those who have already retired. Estimates from the Health and Retirement Study (HRS) for respondents in their early fifties suggest that pension wealth is about 82 percent as valuable as Social Security wealth. In data from the Current Population Survey (CPS), for members of the same cohort, measured when they are 65 to 69, pension incomes are about 58 percent as valuable as incomes from Social Security. Our empirical analysis uses data from the HRS to examine the reasons for these differences in the contributions of pensions as measured in income and wealth data. Key factors accounting for these difference include: a difference in methodology between surveys affecting what is included in pension income; some pension wealth “disappears” at retirement because respondents change their pension into other forms that are not counted as pension income; and the form of annuitization may influence the measure of pension income. A series of caveats notwithstanding, the bottom line is that CPS data on pension incomes received in retirement understates the full contribution pensions make to supporting retirees.

Key Findings

  • There are surprisingly large differences in the estimated importance of pensions against Social Security when they are estimated with Current Population Survey (CPS) data for those ages 65 to 69 in 2006, where pension incomes among retirees are worth 59 percent of income from Social Security, vs. HRS data estimated in 1992 for members of the same cohort when they were ages 51 to 55, where expected pension wealth held by those approaching retirement age is worth 86 percent of the wealth from Social Security.
  • Differences in methodology between the CPS and HRS surveys provide part of the answer. For example, the CPS excludes irregular income from pensions, while the HRS includes irregular income. Using HRS data to duplicate the calculations for the CPS when members of this cohort reach their late sixties in 2006, the ratio of income from pensions to income from Social Security is higher in HRS data at .67 than in CPS data at .59.
  • Following a single cohort as it ages, the ratio of pension wealth to Social Security wealth falls from .86 for those ages 51 to 55 in 1992 to .75 when they are ages 65 to 69.
  • Part of the answer is that the disposition of pensions at job termination, through cash out, roll over, and other changes at retirement, reduces the apparent share of retirement income accounted for by pensions. When the contribution of pensions to income in retirement is valued using only direct payments from pension vehicles that still exist during the retirement period, so that the support that originated in pensions but has since been transformed is ignored, an important part of the contribution pensions make to supporting consumption in retirement is ignored.
  • The bottom line is that CPS data on pension incomes received in retirement understates the full contribution pensions make to supporting retirees.

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Paper ID

WP 2012-268

Publication Type

Working Paper

Publication Year