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A Blue Print For Germany’s Pension Reform

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Author Info
Börsch-Supan, Axel (Institut für Volkswirtschaft und Statistik (IVS))
Abstract

Germany relies almost exclusively on a public pay-as-you-go pension system for old-age income provision. This mandatory “retirement insurance” has become under severe pressure, mainly from population aging and from incentive effects that have reduced labor supply. This paper argues Germany needs a pension reform with three main elements: 1) A reformed pay-as-you-go pillar which is actually fair, features a transparent notional account set-up, and freezes contribution rates at the current level. 2) A second funded pillar which is based on US 401(k)-style grouped accounts that finance the impending aging burden. 3) Augmented by redistributive features that guarante a minimum pension and strengthen human capital formation. The paper briefly discusses the sources of the current problems, details the reform proposal, in particular the cohort-and time-varying transition burden which turns out to be rather moderate, and sheds light on the side effects of such a transition on the German macro economy which are more subtle than is often claimed.

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Paper provided by Institut für Volkswirtschaft und Statistik (IVS), University of Mannheim in its series IVS discussion paper series with number 581.

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Handle: RePEc:mea:ivswpa:581

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Postal: Institut für Volkswirtschaft und Statistik, L7, 3-5, Room 408, University of Mannheim, 68131 Mannheim
Phone: +49/621/181.1861
Fax: +49/621/181.1863
Web page: http://www.vwl.uni-mannheim.de/institut

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