A blue print for Germany's pension reform

Börsch-Supan, Axel

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URL: https://ub-madoc.bib.uni-mannheim.de/331
URN: urn:nbn:de:bsz:180-madoc-3311
Document Type: Working paper
Year of publication: 2002
The title of a journal, publication series: MEA Discussion Papers
Volume: 002
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): Altersversorgung , Reform
Abstract: Germany relies almost exclusively on a public pay-as-you-go pension system for old-age in- come provision. This mandatory “retirement insurance” has become under severe pressure, mainly from population aging and from incentive effects that have reduced labor supply. This paper argues Germany needs a pension reform with three main elements: (1) A reformed pay-as-you-go pillar which is actuarially fair, features a transparent notional account set-up, and freezes contribution rates at the current level; (2) A second funded pillar which is based on US 401(k)-style grouped accounts that finance the impending aging burden; (3) Augmented by redistributive features that guarantee a minimum pension and strengthen human capital formation. The paper briefly discusses the sources of the current problems, details the reform proposal, in particular the cohort- and time-varying transition burden which turns out to be rather moder- ate, and sheds light on the side effects of such a transition on the German macro economy which are more subtle than is often claimed.
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