Rates of Return of the German PAYG System - How they can be measured and how they will develop

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 5097, 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: With the adoption of the latest German pension reform in spring 2004 a public debate arose on whether rates of return for future pensioner cohorts were hreatened to become negative as a result of the new reform. In order to make the system sustainable, the reform had restricted future rises in the contribution rate at the expense of further decreases in pension levels. The paper contributes to this ongoing discussion by providing (1) a thorough discussion on the appropriate measurement of rates of return of the German public pension system and (2) projections of the rates of return for future pensioner cohorts based on the German public pension system after the 2004 reform. It is found that under realistic assumptions of future demographic and labour market developments, rates of return will be lower than for present retirees, but remain positive.

Date: 2005-08-01
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