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A New Pension Formula: For More Fairness and Less Old-Age Poverty

Author

Listed:
  • Friedrich Breyer
  • Stefan Hupfeld

Abstract

The statutory pension insurance system is set up according to the principle of participatory equivalence. This principle seeks to hold pension claims at a specific ratio to paid contributions so that a redistribution of income does not take place. In truth, however, there is a massive redistribution in favor of wage earners with higher incomes, as these individuals draw on their pensions for a longer period of time due to their greater statistical life expectancy. If life expectancy was taken into consideration in the pension formula, this would not only lead to greater distributional neutrality, it would also lead to significantly less old-age poverty among long-term contributors to the pension system.

Suggested Citation

  • Friedrich Breyer & Stefan Hupfeld, 2009. "A New Pension Formula: For More Fairness and Less Old-Age Poverty," Weekly Report, DIW Berlin, German Institute for Economic Research, vol. 5(8), pages 50-54.
  • Handle: RePEc:diw:diwwrp:wr5-8
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    More about this item

    Keywords

    Social security; Life expectancy; Poverty; Redistribution;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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