Personal assets and pension reform: How well prepared are the Germans?

Axel Börsch-Supan () and Lothar Essig ()
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Axel Börsch-Supan: Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim
Lothar Essig: Mannheim Research Institute for the Economics of Aging (MEA) and Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim

No 05-19, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: Demographic change presents major financing problems for the pay-as-you-go pension system. In response to these problems, the 2001 and 2004 German pension reforms reduced the statutory level of benefits from the pay-as-you system. The resulting pension gap is supposed to be filled by funded second and third pillar private pensions. This paper examines the extent to which households are in a position today to close this gap with their personal assets, assuming that they stick to their current saving and asset accumulation behaviour. Four critical factors are relevant to this issue: 1. the anticipated life expectancy, 2. the level of personal assets on retirement 3. the expected age of retirement, and 4. the anticipated interest rate. Our results indicate that about a third of German households will not be able to fill the pension gap unless they were to change their current savings behaviour.

Pages: 47 pages
Date: 2005-03-17
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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