Pension Reform with Variable Retirement Age - A Simulation Analysis for Germany

33 Pages Posted: 17 Jun 2010

See all articles by Hans Fehr

Hans Fehr

University of Würzburg - Institute of Economics and Social Sciences

Manuel Kallweit

affiliation not provided to SSRN

Fabian Kindermann

University of Regensburg; Netspar

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

Fehr, Hans and Kallweit, Manuel and Kindermann, Fabian, Pension Reform with Variable Retirement Age - A Simulation Analysis for Germany (February 1, 2010). Netspar Discussion Paper No. 02/2010-013, Available at SSRN: https://ssrn.com/abstract=1625789 or http://dx.doi.org/10.2139/ssrn.1625789

Hans Fehr (Contact Author)

University of Würzburg - Institute of Economics and Social Sciences ( email )

Sanderring 2
D-97070 Wuerzburg
Germany
0931- 31 29 72 (Phone)
0931- 888 71 29 (Fax)

Manuel Kallweit

affiliation not provided to SSRN ( email )

Fabian Kindermann

University of Regensburg ( email )

Universitaetsstrasse 31
D-93040 Regensburg
Germany

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
221
Abstract Views
1,539
Rank
284,999
PlumX Metrics