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Pension Reform and Demographic Uncertainty: The Case of Germany

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  • Habermann, Christian
  • Fehr, Hans

Abstract

The present paper compares the distributional and risk-sharing consequences of two pension reform proposals in Germany which both aim to improve the sustainability of the current system by introducing demographic variables to the benefit calculation. While the first reform proposes a so-called "sustainability factor" which measures the changes in the dependency ratio, the second reform proposes a so-called "demographic factor" which takes into account the changes in life expectancy. Our simulations indicate that both reforms imply a double burden for currently middle-aged generations and a double relief for future living generations. On the one side, resources are redistributed from currently towards future living generations. In addition, part of the risk from demographic uncertainty is shifted from future living towards currently living middle-aged generations. The reforms differ, however, with respect to the magnitude of the resource distribution and risk implications. Therefore, future generations are much better of with the "sustainability factor", while it is not clear whether middle-aged generations are better off with the "demographic factor" or the "sustainability factor".

Suggested Citation

  • Habermann, Christian & Fehr, Hans, 2003. "Pension Reform and Demographic Uncertainty: The Case of Germany," W.E.P. - Würzburg Economic Papers 47, University of Würzburg, Department of Economics.
    • Handle: RePEc:zbw:wuewep:47
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    Cited by:

    1. De-Lei Sheng & Linfeng Shi & Danping Li & Yanping Zhao, 2022. "Manage Pension Deficit with Heterogeneous Insurance," Methodology and Computing in Applied Probability, Springer, vol. 24(2), pages 1119-1141, June.
    2. Potrafke, Niklas, 2012. "Unemployment, human capital depreciation and pension benefits: an empirical evaluation of German data," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(2), pages 223-241, April.
    3. Tran, Chung, 2018. "Temptation and taxation with elastic labor," Economic Modelling, Elsevier, vol. 70(C), pages 351-369.
    4. María del Carmen Ramos-Herrera & Simón Sosvilla-Rivero, 2020. "Fiscal Sustainability in Aging Societies: Evidence from Euro Area Countries," Sustainability, MDPI, vol. 12(24), pages 1-20, December.
    5. Tyrowicz, Joanna, 2020. "Are incentivized old-age savings schemes effective under incomplete rationality?," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224526, Verein für Socialpolitik / German Economic Association.
    6. Hans FEHR, 2010. "Pension Reform with Variable Retirment Age," EcoMod2010 259600055, EcoMod.
    7. Hans Fehr, 2009. "Computable Stochastic Equilibrium Models and Their Use in Pension- and Ageing Research," De Economist, Springer, vol. 157(4), pages 359-416, December.
    8. Holmøy, Erling & Strøm, Birger, 2013. "Computable General Equilibrium Assessments of Fiscal Sustainability in Norway," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 105-158, Elsevier.
    9. Joanna Tyrowicz & Krzysztof Makarski & Artur Rutkowski, 2020. "Fiscal incentives to pension savings – are they efficient?," Working Paper series 20-06, Rimini Centre for Economic Analysis.
    10. Pianese, Augusto & Attias, Anna & Bianchi, Sergio & Varga, Zoltàn, 2020. "On the asymptotic equilibrium of a population system with migration," Insurance: Mathematics and Economics, Elsevier, vol. 92(C), pages 115-127.
    11. repec:acb:cbeeco:2014-616 is not listed on IDEAS
    12. Kudrna, George & Tran, Chung & Woodland, Alan, 2019. "Facing Demographic Challenges: Pension Cuts Or Tax Hikes?," Macroeconomic Dynamics, Cambridge University Press, vol. 23(2), pages 625-673, March.
    13. Attias, Anna & Arezzo, Maria Felice & Pianese, Augusto & Varga, Zoltan, 2016. "A comparison of two legislative approaches to the pay-as-you-go pension system in terms of adequacy. The Italian case," Insurance: Mathematics and Economics, Elsevier, vol. 68(C), pages 203-211.
    14. Honkatukia, Juha, 2011. "Three takes on sustainability," Research Reports P58, VATT Institute for Economic Research.
    15. Woodland, A., 2016. "Taxation, Pensions, and Demographic Change," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 713-780, Elsevier.
    16. Erling Holmøy & Kyrre Stensnes, 2008. "Will the Norwegian pension reform reach its goals? An integrated micro-macro assessment," Discussion Papers 557, Statistics Norway, Research Department.
    17. Alfonso R. Sánchez, 2014. "The automatic adjustment of pension expenditures in Spain:an evaluation of the 2013 pension reform," Working Papers 1420, Banco de España.
    18. Knell, Markus, 2010. "How automatic adjustment factors affect the internal rate of return of PAYG pension systems," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(1), pages 1-23, January.
    19. Lassila, Jukka & Valkonen, Tarmo, 2007. "Longevity Adjustment of Pension Benefits," Discussion Papers 1073, The Research Institute of the Finnish Economy.
    20. Kudrna, George & Tran, Chung & Woodland, Alan, 2015. "The dynamic fiscal effects of demographic shift: The case of Australia," Economic Modelling, Elsevier, vol. 50(C), pages 105-122.

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    More about this item

    Keywords

    Stochastic population forecasts; CGE models; pension reform in Germany;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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