Pension Reform in Germany

To fund or not to fund

Axel Börsch-Supan

Published: March 2000

German public retirement insurance is in many respects an extreme example of the typical European pay-as-you-go pension system because almost 85% of retirement income stems from this system and only 15% comes from private sources such as funded pensions, labour income, and family transfers. Public retirement insurance has come under severe pressure from population ageing and incentive effects reducing labour supply. This paper argues that pre-funding a significant part of the German system will alleviate both pressures.

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