Dismantling the earnings-related social pension scheme: Germany beyond a crossroad

Winfried Schmähl

No 09/2003, Working papers of the ZeS from University of Bremen, Centre for Social Policy Research (ZeS)

Abstract: A paradigm shift in pension policy decided by the German red-green coalition government will affect the level and structure of pension benefits as well as the mix of old-age security arrangements remarkably. The paper starts with a brief outline of the pension schemes as they were designed before the recent decisions and with some remarks on the reasons for recent reform debates. Then, the major measures of the 2001 Pension Reform are described. The focus of the paper is on the effects of the reform for (personal) income distribution and the institutional design. A partial shift from (mandatory) public (PAYGO financed) pensions to (voluntary) private (capital funded) pensions and from expenditure-oriented revenue policy to revenue-oriented expenditure policy will reduce the benefit level in the statutory pension insurance. A large number of contributors will - even after many years of paying contributions - receive only benefits below the social assistance level. It can be expected that this development will transform the present earnings-related statutory pension scheme, which has a strong contribution-benefit link and is aiming at income-smoothing over the life cycle, into a basic, highly redistributive pension scheme aiming mainly at avoiding poverty. Income inequality in old age is expected to increase as a result of the new strategy in pension policy.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zeswps:092003

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