In statutory pension insurance, the contributions collected in a year are paid out to the current pensioners according to the pay-as-you-go system. The pensions of the parents’ generation are thus paid for by the generation of their children.
The current system can also be interpreted as insurance against childlessness. Every additional child increases the pensions of the parents’ generation at the existing rates of contribution. However, one’s own parents only benefit to a small extent from the contribution payments made by their children. The benefit to society of a child thus clearly exceeds the benefits that the parents receive. Measured in terms of social benefits, parents who only take their own benefits into consideration decide to have too small a number of children. In order to remove this false incentive from statutory pension insurance, the Ifo Institute recommends adding a child component (Kinderrente) to statutory pension insurance and as compensation to reduce the pension benefits of the childless.
The Annual General Meeting of the Ifo Institute for Economic Research on 23 June 2005 focussed on "Pension Reform":
Report on the Ifo Annual Meeting 2005.
Hans-Werner Sinn, "Erhöhung des Rentenalters - Stellungnahme zur Anhörung des Ausschusses Arbeit und Soziales des Deutschen Bundestags", 26 February 2007 (Download, PDF).
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