Personal assets and pension reform: How well prepared are the Germans?

Börsch-Supan, Axel () and Lothar Essig ()
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Lothar Essig: Munich Center for the Economics of Aging (MEA), Postal: Amalienstr. 33, D-80799 Munich

No 5085, MEA discussion paper series from Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy

Abstract: Demographic change presents major financing problems for the pay-as-you-go pension system. In response to these problems, the 2001 and 2004 German pension reforms reduced the statutory level of benefits from the pay-as-you system. The resulting pension gap is supposed to be filled by funded second and third pillar private pensions. This paper examines the extent to which households are in a position today to close this gap with their personal assets, assuming that they stick to their current saving and asset accumulation behaviour. Four critical factors are relevant to this issue: 1. the anticipated life expectancy, 2. the level of personal assets on retirement 3. the expected age of retirement, and 4. the anticipated interest rate. Our results indicate that about a third of German households will not be able to fill the pension gap unless they were to change their current savings behaviour.

Date: 2005-06-30
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