One pillar crumbling, the others too short: old-age provision in Germany

| Publication date: 3 Aug 2016 | Theme: Macroeconomics | External Author(s): Werding, M | JEL Classification: E27, G28, H55, J11, J26 | Journal: National Institute Economic Review Issue 237 | Publisher: Sage Publications, London

Responding to the challenges of demographic ageing, the German system of old-age provision has undergone substantial changes during the past two decades and is in fact still under reconstruction. Benefit levels deriving from the public pay-as-you-go scheme will decline until 2060, while contribution rates may still go up substantially. Additional cover from private or occupational pension schemes is urgently needed. Thus far, steps in this direction have been half-hearted. The continuing crisis in financial markets and a more profound distrust in financial institutions and market-based instruments of old-age provision currently create obstacles to progress with this overhaul. Nevertheless, despite the differing traditions, Germany could learn important lessons now from other developed countries that have longer experience of funded pensions.

Keyword tags: 
old-age provision
public pensions
occupational pensions
precautionary saving
demographic ageing
pension reform
simulations

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