In the years from 2002 to 2004, several catholic associations have drafted a common proposal for reforming public old- age provision in Germany. Their intention is to avoid growing poverty among the elderly which, following the pension reforms of 2001 and 2004, could become an issue for those who receive less-than-average benefits once the German baby boomers enter retirement around 2030. In addition, current changes observed in the labour market offer a rationale for weakening the close link between public pension entitlements and the “standard” type of employment that is subject to compulsory social insurance membership. Therefore, the reform proposal substantially strengthens redistributive elements in the system of public old-age provision through the introduction of a universal „basic pension“, and a corresponding retrenchment of benefit entitlements linked to previous earnings; it replaces the traditional way of defining survivor benefits by a new scheme of “splitting” benefits between married spouses; in addition, it is meant to increase the scope for supplementary old-age provision that is employer-based or purely private. Ifo has investigated the long-term financial viability and the redistributive effects of the new pension system. The Max-Planck Institute of Foreign and International Social Law has discussed legal aspects of the proposed reforms.
The projections are run with the CESifo Pension Model, a simple accounting tool which is especially designed to investigate the long-term financial viability of the German public pension scheme (and other branches of social insurance) under the conditions of demographic change.
The simulations are based on the latest official population projections by the German Federal Office of Statistics and on actual data taken from the system of national accounts and various other official data sources provided by ministries and social insurance administrations which are then projected until 2050.
Of course, the reform of the German public pension scheme suggested by the catholic associations cannot remove the prospective effects of demographic change on the scheme’s budget. However, it leads to a very different pattern of distributing the consequences for benefit levels across different groups of employees and pensioners when compared to the current law. Especially if the reduction in employers’ contributions that would result from the reform is used for an expansion of employer-based old-age provision, the new scheme offers an alternative that is worth being discussed.
Werding, M., H. Hofmann and H.-J. Reinhard, Das Rentenmodell der katholischen Verbände, ifo Forschungsbericht No. 34, Ifo Institute: Munich (Abstract) .
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