How to make a Defined Benefit System Sustainable: The Sustainability Factor in the German Benefit Indexation Formula

Börsch-Supan, Axel (), Anette Reil-Held () and Christina Benita Wilke
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Christina Benita Wilke: Munich Center for the Economics of Aging (MEA), Postal: Amalienstr. 33, D-80799 Munich

No 3037, 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: Two years after the "Riester reform" the German public pension system is once again in need of reform. The demographic and labor market assumptions underpinning the Riester reform have proved to be unrealistic. An important target of current reform attempts is the formula that annually re-adjusts the benefits for all pensioners, the benefit indexation formula. Modifications of this formula can considerably ease the financial pressure of pensions on labor since this formula impacts existing pensioners as well as new retirees. This paper presents and examines the implications of possible alternatives to the current benefit indexation formula. In particular, we examine the self-stabilizing effect of the "sustainability factor" which aims at achieving more long-run stability and intergenerational equity in the pension system by linking annual benefit changes to the so-called system dependency ratio, the ratio of beneficiaries to contributors.

JEL-codes: Z00 (search for similar items in EconPapers)
Date: 2003-10-13
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Citations: View citations in EconPapers (8)

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