Pensions in Germany: a Concept for Voluntary Top-Up Pension Funds

Demographic change poses major challenges for German pension policy. As the baby-boomer generation retires, there will be a growing number of pension recipients and a falling number of contributors. To distribute this burden fairly across the different generations, the Riester Reform was a move to lower the level of legal, pay-as-you-go pensions and to reinforce additional voluntary top-up pensions. The proliferation of corporate and private top-up pensions nevertheless remains far below original expectations. Andreas Knabe and Joachim Weimann, University of Magdeburg, explain how private pensions can be underpinned with the “Deutschlandrente”. The status quo will be changed so that everyone who doesn’t actively object will be signed up for a top-up pension. All employees will also be automatically involved in corporate or private pension schemes. Since employees can opt out of top-up pension schemes at any time, this does not impair their freedom to take decisions.