Working Paper: NBER ID: w10525
Authors: Axel Brschsupan; Christina B. Wilke
Abstract: 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 process is the topic of this paper. It has two parts. Part A describes the German pension system as it has shaped the labor market until about the year 2000. Part B describes the three staged reform process that will convert the exemplary and monolithic Bismarckian public insurance system after the year 2000 into a complex multipillar system. The paper delivers an assessment in how far these reform steps will solve the pressing problems of a prototypical pay-as-you-go system of old age provision, hopefully with lessons for other countries with similar problems.
Keywords: German pension system; public pensions; reform process; demographic changes
JEL Codes: H0; H8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 1992 reform (E69) | benefits received by retirees (H55) |
| aging population (J14) | dependency ratio (J19) |
| dependency ratio (J19) | strain on pension system (H55) |
| 2001 Riester reform (H55) | public pensions (H55) |
| 2001 Riester reform (H55) | supplementary private pensions (H55) |