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A Blue Print For Germany’s Pension Reform

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  • Börsch-Supan, Axel

    (Munich Center for the Economics of Aging (MEA))

Abstract

Germany relies almost exclusively on a public pay-as-you-go pension system for old-age in-come 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 actuarially 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 guarantee 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.

Suggested Citation

  • Börsch-Supan, Axel, 2002. "A Blue Print For Germany’s Pension Reform," MEA discussion paper series 02002, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    • Handle: RePEc:mea:meawpa:02002
    as

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    References listed on IDEAS

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