The German Retirement Benefit Formula: Drawbacks and Alternatives
We identify several objectionable features of the German retirement benefit formula. Groups of insureds with higher than average life expectancy are subsidized by the rest of the members because the formula neglects differences in group-specific life expectancy. Moreover, undesirable long-run effects arise if the earnings ceiling is raised or mandatory membership is extended, or if life expectancy rises or the rate of population growth declines. We present three alternative formulas. In particular, a return-rate formula that rewards contributions with the internal rate of return of the pay-as-yougo pension system is superior to the current formula. This formula corresponds to the concept of notional defined contribution pensions that has been recently introduced in several countries.
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Volume (Year): 60 (2004)
Issue (Month): 1 (April)
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References listed on IDEAS
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- Mathias Kifman & Dirk Schindler, 2000. "Smoothing the Implicit Tax Rate in a Pay-as-you-go Pension System," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(3), pages 261-, May.
- ûystein ThÛgersen, 1998. "A note on intergenerational risk sharing and the design of pay-as-you-go pension programs," Journal of Population Economics, Springer;European Society for Population Economics, vol. 11(3), pages 373-378.
- Robert Fenge & Silke Uebelmesser & Martin Werding, 2002. "Second-best Properties of Implicit Social Security Taxes: Theory and Empirical Evidence," CESifo Working Paper Series 743, CESifo Group Munich.
- Marcel Thum & Jakob von Weisäcker, 2000. "Implizite Einkommensteuer als Messlatte für die aktuellen Rentenreformvorschläge," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 1(4), pages 453-468, November.
- Mathias Kifmann, 2001. "Langfristige Folgen einer Einbeziehung der Selbständigen in die gesetzliche Rentenversicherung," Discussion Papers of DIW Berlin 251, DIW Berlin, German Institute for Economic Research.
- Klaus Beckmann, 2000. "A Note on the Tax Rate implicit in Contributions to Pay-as-you-go Public Pension Systems," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(1), pages 63-, September.
- Homburg, Stefan & Richter, Wolfram, 1990. "Eine effizienzorientierte Reform der GRV," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 183-191..
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