The German Retirement Benefit Formula: Drawbacks and Alternatives
AbstractWe identify several objectionable features of the German retirement benefit formula. Groups of insureds with higher than average life expectancy are subsidized by the rest of the members because the formula neglects differences in group-specific life expectancy. Moreover, undesirable long-run effects arise if the earnings ceiling is raised or mandatory membership is extended, or if life expectancy rises or the rate of population growth declines. We present three alternative formulas. In particular, a return-rate formula that rewards contributions with the internal rate of return of the pay-as-yougo pension system is superior to the current formula. This formula corresponds to the concept of notional defined contribution pensions that has been recently introduced in several countries.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 60 (2004)
Issue (Month): 1 (April)
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Other versions of this item:
- Friedrich Breyer & Mathias Kifmann, 2003. "The German Retirement Benefit Formula: Drawbacks and Alternatives," Discussion Papers of DIW Berlin 326, DIW Berlin, German Institute for Economic Research.
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
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Working Paper Series of the Department of Economics, University of Konstanz
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