How to make a defined benefit system sustainable : the "sustainable factor" in the German benefit indexation formula

Börsch-Supan, Axel ; Reil-Held, Anette ; Wilke, Christina Benita

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URN: urn:nbn:de:bsz:180-madoc-2883
Document Type: Working paper
Year of publication: 2003
The title of a journal, publication series: MEA Discussion Papers
Volume: 037
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Veröffentlichungen des MEA (Mannheim Research Institute For the Economics of Aging) > MEA Discussion Papers
Subject: 330 Economics
Subject headings (SWD): Soziale Sicherheit , Nachhaltigkeit
Abstract: Two years after the “Riester reform” the German public pension system is once again in need of reform. The demographic and labor market assumptions underpinning the Riester reform have proved to be unrealistic. An important target of current reform attempts is the formula that annually re-adjusts the benefits for all pensioners, the benefit indexation formula. Modifications of this formula can considerably ease the financial pressure of pensions on labor since this formula impacts existing pensioners as well as new retirees. This paper presents and examines the implications of possible alternatives to the current benefit indexation formula. In particular, we examine the self-stabilizing effect of the “sustainability factor” which aims at achieving more long-run stability and intergenerational equity in the pension system by linking annual benefit changes to the so-called system dependency ratio, the ratio of beneficiaries to contributors.
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