Pension Reform with Variable Retirement Age - A Simulation Analysis for Germany
33 Pages Posted: 17 Jun 2010
Date Written: February 1, 2010
Abstract
In 2007 Germany has introduced a pension reform which increases the normal retirement age from currently age 65 to 67. The present study aims to quantify the macroeconomic, welfare and efficiency consequences of this reform by means of a computable general equilibrium model with overlapping generations. Our model features the most recent demographic projections and distinguishes three skill classes with different life expectancies within generations. Most importantly, individuals choose their effective age when they exit from the labor market and start receiving pension benefits. Our quantitative analysis indicates three central results: First, the previously implemented pension reductions are not able to stabilize long-run contribution rates and increase future old-age poverty rates in Germany considerably. Second, the considered reform will increase effective retirement age by about one year and redistribute towards future cohorts. However, it hardly reduces old-age poverty since rich people are more flexible in adjusting retirement. Overall, the efficiency gains of the reform are very modest. Third, supplementary policy should raise the actuarial adjustment factor while other reform packages aimed to reduce old-age poverty may be associated with significant efficiency cost.
Keywords: Intensive And Extensive Labor Supply, Overlapping Generations, Old-Age Poverty
JEL Classification: C68, H55, J12, J26
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Demography, National Savings and International Capital Flows
-
Population Aging and Global Capital Flows in a Parallel Universe
By Robin Brooks
-
The Developed World's Demographic Transition - the Roles of Capital Flows, Immigration, and Policy
By Hans Fehr, Sabine Jokisch, ...
-
Aging, Pension Reform, and Capital Flows: A Multi-Country Simulation Model
By Axel H. Börsch-supan, Alexander Ludwig, ...
-
Capital Flows to the New World as an Intergenerational Transfer
-
The Demographic Transition in Closed and Open Economies: A Tale of Two Regions
-
Domestic Saving and International Capital Flows Reconsidered
-
Population Aging and International Capital Flows
By David Domeij and Martin Flodén