Pension Provision in Germany

Aim of this paper is to study the provision of income to the elderly in Germany and to assess whether the German social security system provides an adequate retirement income in a sustainable way. Accordingly, the paper has two parts. The first part describes the German public old age social security program (''Gesetzliche Rentenversicherung'') and its incentive effects on retirement decisions. It presents the key features of the system and discusses the sustainabilita of the German pay-as-you-go system as the German population ages and the competitive pressures on wages and fringe benefits increases. The second part of the paper investigates the sources of income after retirement. It summarizes activity rates of older persons in Germany during the last 35 years and compares by income source the distribution of the income received by the elderly with the income received by younger Germans. The paper finds that retirement income in Germany is quite generous on average with a replacement rate of about 88 percent. It is also more evenly distributed than income of younger households. Nevertheless, we find households that appear overannuitized, e.g. single elderly male with a replacement rate in excess of 100 percent, as well as small pockets of poverty, e.g. single elderly women of whom between 3 and 6 percent have incomes below the poverty line.