Lower Contribution Rates in the State Pension System with Private Pension Plans

In discussions on the future of the state pension system in Germany, there are increasing demands for the introduction of obligatory private pension plans or at least private plans that receive stronger state support. These are meant to ease the burden on the state pension system and to lead to a more efficient retirement financing. The state pension should continue to carry the main burden for retirement financing but at the same time be strongly supplemented by a funded element. Since a supplemental retirement financing also serves the purpose of easing the burdens on the state pension system, the benefits paid by the state system must be reduced as the private system is built up. This cannot be done on a broad scale, i.e. for all pension recipients in the same way, but must be done in accord with the amount of possible private retirement plans. The resulting lowering of pension benefits should be based on the year of birth. Younger people, who have more time to build up a private pension plan, can be asked to accept a stronger lowering of state pension benefits than their elders. Those already receiving pension benefits would not be affected by these measures. Prof. Eckart Bomsdorf of the Faculty of Economic and Social Statistics at the University of Cologne presents in this article an approach that includes lowering pension benefits based on the year of birth. In various models, the lowering of pension benefits is transferred to the amount of pension benefits, and generational effects are determined. The parameters are chosen in such a way that benefits from the state pension system and the supplemental retirement plans are higher than the previously expected benefits. In the long term, there is a considerable savings potential for the state pension system.