Projection methods and scenarios for public and private pension information

Axel Börsch-Supan, Alexander Ludwig and Anette Reil-Held

No 04-61, Papers from Sonderforschungsbreich 504

Abstract: Public pensions - the primary pillar of old-age income provision - will, in the future, be less generous than they have been in the past, in particular owing to the impact of demographic change. The pension gap is supposed to be plugged by the second and third pillars of pension provision. However, people require reliable planning information if they are to exercise greater individual responsibility. It is therefore absolutely essential that adequate information is made available about the level of pension benefits that will be generated by each pillar of old-age pension provision. This paper outlines a number of different means of presenting the level of future pensions and the assumptions on which such extrapolations are necessarily based. Our work is based on an assumed average rate of inflation of 1.5% and an average rate of real income growth not exceeding 1.5%. This last figure is derived from calculations made in the framework of a macroeconomic simulation model. This model also shows that while the funded pillar of old-age pension provision is not entirely immune to population aging, it is not substantially threatened by a substantial decrease in stock market prices, the so-called "asset meltdown".

Date: 2004
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Working Paper: Projection methods and scenarios for public and private pension information (2005)
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