Auf der Suche nach der besten Rentenanpassungsformel (On the Hunt for the Best Pension Adjustment Formula in Germany)

57 Pages Posted: 22 Jun 2011 Last revised: 9 Feb 2012

See all articles by Martin Gasche

Martin Gasche

University of Mannheim - Mannheim Research Institute for the Economics of Aging (MEA)

Sebastian Kluth

Max Planck Institute for Social Law and Social Policy

Date Written: May 21, 2011

Abstract

Due to its complexity and incomprehensibility the mechanism for the annual pension adjustment in Germany has experienced rising criticism. We compare the actual formula and alternative adjustment proposals on the basis of different criteria. It will become evident that the current formula is better than its reputation suggests. However, a salary indexed adjustment formula extended to include a sustainability factor presents a valid alternative. Such a formula is coherent and predictable, it guarantees pensioners’ participation in the technological progress, it balances the opposing goals of stable contribution rates and stable replacement rates, it limits intergenerational inequality and leads to a self stabilizing pension system. Adjustment formulas that are indexed to the wage bill or the inflation rate turn out to be less appropriate because they don’t adequately account for future demographic changes.

Note: Downloadable document is in German.

Keywords: pension reform, pension adjustment, pension formula, contribution rate, pension level, simulation model, implicit return, implicit tax

JEL Classification: H55

Suggested Citation

Gasche, Martin and Kluth, Sebastian, Auf der Suche nach der besten Rentenanpassungsformel (On the Hunt for the Best Pension Adjustment Formula in Germany) (May 21, 2011). MEA Discussion Paper No. 241-11, Available at SSRN: https://ssrn.com/abstract=1869008 or http://dx.doi.org/10.2139/ssrn.1869008

Martin Gasche (Contact Author)

University of Mannheim - Mannheim Research Institute for the Economics of Aging (MEA) ( email )

D-68131 Mannheim
Germany

Sebastian Kluth

Max Planck Institute for Social Law and Social Policy ( email )

Amalienstraße 33
München, 80799
Germany

HOME PAGE: http://mea.mpisoc.mpg.de/

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

Paper statistics

Downloads
119
Abstract Views
1,706
Rank
508,046
PlumX Metrics