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The German Public Pension System: How it Was, How it Will Be

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  • Axel Börsch-Supan

    ()

  • Christina Benita Wilke

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

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    Abstract

    Germany still has a very generous public pay-as-you-go pension system. It is characterized by early effective retirement ages and very high effective replacement rates. Most workers receive virtually all of their retirement income from this public retirement insurance. Costs are almost 12 percent of GDP, more than 2.5 times as much as the U.S. Social Security System. The pressures exerted by population aging on this monolithic system, amplified by negative incentive effects, have induced a reform process that began in 1992 and is still ongoing. This paper has two parts. Part A describes the German pension system as it has shaped the labor market from 1972 until today. Part B describes the reform process which will convert the exemplary and monolithic Bismarckian public insurance system to a complex multipillar system. We provide a survey of the main features of the future German retirement system introduced by the so called “Riester Reform” in 2001 and an assessment in how far this last reform step will solve the pressing problems of the German system of old age provision.

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    Bibliographic Info

    Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 03034.

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    Date of creation: 26 Aug 2003
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    Handle: RePEc:mea:meawpa:03034

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    Postal: Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy, Amalienstraße 33, 80799 München, Germany
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    References

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    1. Sikandar Siddiqui, 1997. "The pension incentive to retire: Empirical evidence for West Germany," Journal of Population Economics, Springer, vol. 10(4), pages 463-486.
    2. Simone Kohnz & Reinhold Schnabel, 2002. "Micro Modeling of Retirement Decisions in Germany," MEA discussion paper series 02020, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    3. David M. Cutler & Louise Sheiner, 1998. "Demographics and Medical Care Spending: Standard and Non-Standard Effects," NBER Working Papers 6866, National Bureau of Economic Research, Inc.
    4. Borsch-Supan, Axel & Schnabel, Reinhold, 1998. "Social Security and Declining Labor-Force Participation in Germany," American Economic Review, American Economic Association, vol. 88(2), pages 173-78, May.
    5. Axel Borsch-Supan & Reinhold Schnabel, 1999. "Social Security and Retirement in Germany," NBER Chapters, in: Social Security and Retirement around the World, pages 135-180 National Bureau of Economic Research, Inc.
    6. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
    7. Brunner, Johann K., 1993. "Redistribution and the efficiency of the pay-as-you-go pension system," Discussion Papers, Series 1 265, University of Konstanz, Department of Economics.
    8. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
    9. Borsch-Supan, Axel, 2000. "A Model under Siege: A Case Study of the German Retirement Insurance System," Economic Journal, Royal Economic Society, vol. 110(461), pages F24-45, February.
    10. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1.
    11. Axel Börsch-Supan & Tito Boeri & Guido Tabellini, 2002. "Would you Like to Reform the Pension System?," MEA discussion paper series 02007, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    12. Börsch-Supan, Axel, 2000. "Rentenreform und die Bereitschaft zur Eigenvorsorge: Umfrageergebnisse in Deutschland," Sonderforschungsbereich 504 Publications 00-25, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
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    Cited by:
    1. Ivica Dus & Raimond Maurer & Olivia S. Mitchell, 2003. "Betting on Death and Capital Markets in Retirement: A Shortfall Risk Analysis of Life Annuities versus Phased Withdrawal Plans," Working Papers wp063, University of Michigan, Michigan Retirement Research Center.
    2. Deschryvere, Matthias, 2004. "Labour Force Behavior of Elderly Two Adult Households: Evidence from EU-countries," Discussion Papers 933, The Research Institute of the Finnish Economy.
    3. Fanny A. Kluge, 2009. "Transfers, consumption and income over the lifecycle in Germany," MPIDR Working Papers WP-2009-014, Max Planck Institute for Demographic Research, Rostock, Germany.

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