On the Path to Old-Age Poverty - Assessing the Impact of the Funded Riester Pension

With the pension reforms of 2001 and 2004 the objective of stable living standards was abandoned, a gradual reduction of the pension level was envisaged and the funded "Riester Pension" was introduced on a voluntary basis. First analyses of this reform show that the promised effects - higher yields and the long-term stability of the overall pension level - have not materialised so far. A large number of people have not signed a "Riester Pension" contract or pay only small contributions. The financial and euro crises reduce yields. Funded pensions do not help to limit the demographic risks of old age provision. The reforms thus prove problematic: There is a high risk of increasing poverty among the elderly. Therefore, policy makers must act. The public pension level must not be reduced further. Instead it has to be increased to the average OECD level. Rather than subsidise "Riester Pensions" the government should use tax revenues for a targeted increase of low pensions. Further, a reasonable disability pension should be reintroduced.