A Blue Print For Germany’s Pension Reform

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

No 2002, 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: Germany relies almost exclusively on a public pay-as-you-go pension system for old-age in-come provision. This mandatory “retirement insurance†has become under severe pressure, mainly from population aging and from incentive effects that have reduced labor supply. This paper argues Germany needs a pension reform with three main elements: (1) A reformed pay-as-you-go pillar which is actuarially fair, features a transparent notional account set-up, and freezes contribution rates at the current level; (2) A second funded pillar which is based on US 401(k)-style grouped accounts that finance the impending aging burden; (3) Augmented by redistributive features that guarantee a minimum pension and strengthen human capital formation. The paper briefly discusses the sources of the current problems, details the reform proposal, in particular the cohort- and time-varying transition burden which turns out to be rather moderate, and sheds light on the side effects of such a transition on the German macro economy which are more subtle than is often claimed.

JEL-codes: Z00 (search for similar items in EconPapers)
Date: 2002-01-10
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