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Pensions in Germany


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  • Queisser, Monika


Germany's pension system was originally designed as a scaled premium system. It formally became a pay-as-you-go system in 1957. Participation in the system is mandatory for all dependent employees and only some groups of self-employed. The system is greatly fragmented in terms of institutions, coverage, contributions, and benefit levels. A discrepancy has emerged between the system dependency ratio and the demographic old-age dependency ratio. This has been caused by the use of early retirement and disability pensions as a means of tackling high unemployment, especially in Germany's 5 new states. Except for the high incidence of early retirement and disability pensions the system does not suffer from the problems that have afflicted other pension systems (e.g. evasion). The expected demographic aging poses major challenge. The contribution rate cannot be increased so benefits will have to be cut, most likely through an increase in the normal retirement age and tighter rules for disability pensions and early retirement. Germany's system is not overly generous, compared with other OECD countries. Intragenerational redistribution in the pension system is quite limited. Germany does not have a tilted benefit formula to redistribute income from higher to lower income groups. Means-tested social assistance is used to support the old poor.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1664.

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Date of creation: 31 Oct 1996
Date of revision:
Handle: RePEc:wbk:wbrwps:1664

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Keywords: Public Health Promotion; Pensions&Retirement Systems; Banks&Banking Reform; Payment Systems&Infrastructure; Non Bank Financial Institutions; Insurance&Risk Mitigation; Pensions&Retirement Systems; Banks&Banking Reform; Non Bank Financial Institutions; Contractual Savings;


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Cited by:
  1. Fehr, Hans, 1999. "Welfare Effects of Dynamic Tax Reforms," Beiträge zur Finanzwissenschaft, Mohr Siebeck, Tübingen, edition 1, volume 5, number urn:isbn:9783161470165, July.
  2. Serrano, Carlos, 1999. "Social security reform, income disribution, fiscal policy, and capital accumulation," Policy Research Working Paper Series 2055, The World Bank.
  3. World Bank, 2002. "Reducing Vulnerability and Increasing Opportunity : Social Protection in the Middle East and North Africa," World Bank Publications, The World Bank, number 14255.
  4. Legros, Florence, 2003. "Notional Defined Contribution : A Comparison of the French and the German Point Systems," Economics Papers from University Paris Dauphine 123456789/6478, Paris Dauphine University.
  5. Whitehouse, Edward, 2001. "Pension systems in 15 countries compared: the value of entitlements," MPRA Paper 14751, University Library of Munich, Germany.
  6. Mary O'Sullivan, 1998. "The Political Economy of Corporate Governance in Germany," Economics Working Paper Archive wp_226, Levy Economics Institute.


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