Savings in Times of Demographic Change: Lessons from the German Experience

37 Pages Posted: 18 Dec 2014

See all articles by Axel H. Börsch-Supan

Axel H. Börsch-Supan

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA)

Tabea Bucher-Koenen

ZEW – Leibniz Centre for European Economic Research; Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA)

Michela Coppola

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Social Law and Social Policy

Bettina Lamla

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA)

Date Written: October 2014

Abstract

Pension reforms in many developed countries make individuals shoulder a bigger share of longevity and income risks. The desired response is that individuals accumulate private assets for retirement. Whether this actually takes place, is of paramount relevance for scientists and policy makers. We take Germany as an example: Twenty years of pension reform have transformed the monolithic German pension system into a multi-pillar system. Formerly generous public pension benefits are gradually being reduced, while substantial incentives are granted to occupational and private saving schemes. Has this transition worked out? We survey the reform steps and household’s reactions: How did individuals adjust their labor market behavior? How did private and occupational pension plans take off? How do behavioral adjustments vary in the population?

Most Germans adapted to the new situation. Both actual and expected retirement decisions changed and the share of households without supplementary pensions decreased from 73% to 39% in little more than a decade. This is a remarkable success. Nonetheless, households with low education, low income and less financial education did neither adjust their retirement behavior nor pick up supplementary pension plans and are thus likely to face difficulties in bridging the gap arising in future pension income.

Keywords: pension reform, Germany, saving behavior, retirement behavior

JEL Classification: D91, J26, D14

Suggested Citation

Börsch-Supan, Axel H. and Bucher-Koenen, Tabea and Coppola, Michela and Lamla, Bettina, Savings in Times of Demographic Change: Lessons from the German Experience (October 2014). Max Planck Institute for Social Law and Social Policy Discussion Paper No. 18-2014. Available at SSRN: https://ssrn.com/abstract=2539019 or http://dx.doi.org/10.2139/ssrn.2539019

Axel H. Börsch-Supan (Contact Author)

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

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

Tabea Bucher-Koenen

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

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

Michela Coppola

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Social Law and Social Policy ( email )

Amalienstraße 33
München, 80799
Germany

HOME PAGE: http://www.mea.mpisoc.mpg.de/index.php?id=230&no_cache=1&tx_meamitarbeiteranzeige_pi1[showUid]=1084&

Bettina Lamla

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany

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