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The German Public Pension System: How it Was, How it Will Be

  • Axel Börsch-Supan


  • Christina Benita Wilke

    (Munich Center for the Economics of Aging (MEA))

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    Germany still has a very generous public pay-as-you-go pension system. It is characterized by early effective retirement ages and very high effective replacement rates. Most workers receive virtually all of their retirement income from this public retirement insurance. Costs are almost 12 percent of GDP, more than 2.5 times as much as the U.S. Social Security System. The pressures exerted by population aging on this monolithic system, amplified by negative incentive effects, have induced a reform process that began in 1992 and is still ongoing. This paper has two parts. Part A describes the German pension system as it has shaped the labor market from 1972 until today. Part B describes the reform process which will convert the exemplary and monolithic Bismarckian public insurance system to a complex multipillar system. We provide a survey of the main features of the future German retirement system introduced by the so called “Riester Reform†in 2001 and an assessment in how far this last reform step will solve the pressing problems of the German system of old age provision.

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    Paper 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 03034.

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    Date of creation: 26 Aug 2003
    Date of revision:
    Handle: RePEc:mea:meawpa:03034
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    1. Axel Börsch-Supan & Reinhold Schnabel & Simone Kohnz & Giovanni Mastrobuoni, 2004. "Micro-Modeling of Retirement Decisions in Germany," NBER Chapters, in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 285-344 National Bureau of Economic Research, Inc.
    2. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
    3. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, July.
    4. Borsch-Supan, Axel & Schnabel, Reinhold, 1998. "Social Security and Declining Labor-Force Participation in Germany," American Economic Review, American Economic Association, vol. 88(2), pages 173-78, May.
    5. Axel Borsch-Supan & Reinhold Schnabel, 1999. "Social Security and Retirement in Germany," NBER Chapters, in: Social Security and Retirement around the World, pages 135-180 National Bureau of Economic Research, Inc.
    6. Brunner, Johann K., 1993. "Redistribution and the efficiency of the pay-as-you-go pension system," Discussion Papers, Series I 265, University of Konstanz, Department of Economics.
    7. Börsch-Supan, Axel, 2000. "Rentenreform und die Bereitschaft zur Eigenvorsorge: Umfrageergebnisse in Deutschland," Sonderforschungsbereich 504 Publications 00-25, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    8. David M. Cutler & Louise Sheiner, 1999. "Demographics and medical care spending: standard and non-standard effects," Finance and Economics Discussion Series 1999-20, Board of Governors of the Federal Reserve System (U.S.).
    9. Borsch-Supan, Axel, 2000. "A Model under Siege: A Case Study of the German Retirement Insurance System," Economic Journal, Royal Economic Society, vol. 110(461), pages F24-45, February.
    10. Axel Börsch-Supan & Tito Boeri & Guido Tabellini, 2002. "Would you Like to Reform the Pension System?," MEA discussion paper series 02007, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    11. Sikandar Siddiqui, 1997. "The pension incentive to retire: Empirical evidence for West Germany," Journal of Population Economics, Springer, vol. 10(4), pages 463-486.
    12. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
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