Macroeconomic Consequences of the Funded Pension System Illusions and Realities

Camille Logeay, Volker Meinhardt, Katja Rietzler () and Rudolf Zwiener
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Rudolf Zwiener: Macroeconomic Policy Institute (IMK)

No 43e-2009, IMK Report from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: The pension reforms of the years 2000 until 2007 were supposed to attenuate the foreseeable effects of demographic change on the pension system. This is why the retirement age was raised, the pension level was lowered and a so-called sustainability factor ("Nachhaltigkeitsfaktor") was introduced into the pension formula. This approach meant a fundamental change of objectives - from safeguarding living standards in retirement to the stability of contribution rates. The lower future pension level is to be complemented by the subsidised formation of a private capital stock ("Riester pension") without employer participation. The analysis of the macroeconomic consequences of this reform shows that the chosen policy of enhanced funding both dampens growth and leads to insufficient income in old age. Thus the current strategy is not suitable for alleviating the demographic burden.

Pages: 15 pages
Date: 2009
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