On the feasibility of notional defined contribution systems: The German case
AbstractNotional defined contribution (NDC) systems have strongly been being debated in the worldwide pension literature in the past years. This paper deals with the feasibility of such NDC systems. The focus is on the German case, where the recent 2004 pension reform introduced a so-called sustainability factor, that de facto incorporates some crucial characteristics of an NDC system into the public pension system, but maintains the traditional benefit indexation formula approach. The paper analyzes the effects a hypothetical introduction of an NDC system would have on the financial situation of the German PAYG system. It is found that a genuine NDC system would be feasible in the sense that it would be financially possible and would achieve gross pension levels above, equal or only slightly below those that can be forecasted for the standard pensioner under the present German pension system. However, it is shown that an NDC system would require large buffer funds which are currently not available. Furthermore, the distribution of pension income among cohorts and across time would be very different and may be hard to motivate from a political perspective. Altogether, it becomes clear that an NDC system cannot solve the demographic problems but simply copes with them in a different way than conventional PAYG systems. Thus, it does not replace the necessity to supplement the public pension system by a funded second and third private pillar in order to prepare for the future demographic changes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper 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 08165.
Date of creation: 15 Sep 2008
Date of revision:
Contact details of provider:
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
Web page: http://www.mea.mpisoc.mpg.de/
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Disney, Richard, 1999. "Notional accounts as a pension reform strategy : an evaluation," Social Protection Discussion Papers 21302, The World Bank.
- Florian Heiss, 2003. "Wie groß soll die Schwankungsreserve der gesetzlichen Rentenversicherung sein?," MEA discussion paper series 03033, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
- Axel Borsch-Supan & Barbara Berkel, 2003. "Pension Reform in Germany: The Impact on Retirement Decisions," NBER Working Papers 9913, National Bureau of Economic Research, Inc.
- Axel Boersch-Supan & Christina B. Wilke, 2004. "The German Public Pension System: How it Was, How it Will Be," NBER Working Papers 10525, National Bureau of Economic Research, Inc.
- Holzmann, Robert & Palacios, Robert, 2001. "Individual accounts as social insurance : a World Bank perspective," Social Protection Discussion Papers 23303, The World Bank.
- Lindbeck, Assar & Persson, Mats, 2002.
"The Gains from Pension Reform,"
712, Stockholm University, Institute for International Economic Studies.
- Fox, Louise & Palmer, Edward, 1999. "Latvian pension reform," Social Protection Discussion Papers 20850, The World Bank.
- Brugiavini, Agar & Galasso, Vincenzo, 2004.
"The social security reform process in Italy: where do we stand?,"
Journal of Pension Economics and Finance,
Cambridge University Press, vol. 3(02), pages 165-195, July.
- Agar Brugiavini & Vincenzo Galasso, 2003. "The Social Security Reform Process in Italy: Where do We Stand?," Working Papers wp052, University of Michigan, Michigan Retirement Research Center.
- Valdes-Prieto, Salvador, 2000. " The Financial Stability of Notional Account Pensions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 395-417, June.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- Reinhard Hujer & Bernd Fitzenberger & Reinhold Schnabel & Thomas E. MaCurdy, 2001. "Testing for uniform wage trends in West-Germany: A cohort analysis using quantile regressions for censored data," Empirical Economics, Springer, vol. 26(1), pages 41-86.
- Clemens, Johannes, 2006. "Anmerkungen zur geplanten Anhebung des gesetzlichen Rentenalters," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1998 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, vol. 86(3), pages 163-167.
- Barbara Berkel & Axel Börsch-Supan, 2003. "Pension Reform in Germany: The Impact on Retirement Decisions," MEA discussion paper series 03036, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
- Palmer, Edward, 2000. "The Swedish pension reform model : framework and issues," Social Protection Discussion Papers 23086, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Henning Frankenberger).
If references are entirely missing, you can add them using this form.