Linking retirement age to life expectancy in a Bismarckian system – the case of Germany

Publication date: 3 Aug 2016 | Publication type: National Institute Economic Review | Theme: Macroeconomics | External Author(s): Vogt, V; Althammer, J | JEL Classification: H55, J10 | Journal: National Institute Economic Review Issue 237 | Publisher: Sage Publications, London

In times of decreasing mortality, one way to stabilise a PAYG pension system is to interrelate the retirement age to the anticipated average lifespan. This paper investigates two approaches for Germany: one is to keep the average retirement duration constant, the other to define a constant share of the total lifespan for the retirement period. Our simulation model uses a Leslie matrix population projection, a Solow-Swan growth model and a detailed calculation of the German pension insurance budget. Our results show quite a significant impact on the insurance level and a rather small effect on the contribution rate, which is characteristic of a Bismarckian system.

Keyword tags: 
retirement age
pension reform
life expectancy
fiscal sustainability
macroeconomic projection

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