Inclusion of the self-employed persons in the German Pension System

The assumption of an existing high risk of old age poverty among self-employed persons led to the discussion whether self-employed persons should be obligatorily insured in the German Pension System or not. This project analyses the theoretical and empirical effects of an inclusion of self-employed persons in the German Pension System. First, the theoretical consequences for the contribution rate are analyzed using a simple OLG model. Second, the implications for the contribution rate are simulated for different scenarios using the pension simulation system MEA-Pensim. Apparently, the inclusion of the self-employed persons leads to a reduction in the contribution rate in the short and in the middle run. The magnitude of these temporary effects depends essentially on the assumed contribution assessment basis, the size and characteristics of the included group of people (all self-employed persons or only the self-employed persons without employees) and the age at which a conservation of the status quo will be established for older currently self-employed persons (inclusion of self-employed persons under the age of 50 or the age of 30). The maximal effect on the contribution rate and standard pension level can be observed if all self-employed persons are included and the net income is chosen as the contribution basis. In this case, the contribution rate is not more than 1.3 percentage points smaller and the standard pension level not more than 2.1 percentage points higher. In the long run (until 2060), and regardless of the underlying assumptions, the contribution rate reaches the same level as in a status quo scenario where the self-employed persons are still exempt. Given a higher life expectancy of the self-employed, their inclusion increases slightly the contribution rate in the long run. In terms of people who are already insured by the German Pension System, the reform positively influences effectiveness. Furthermore, the possibility of equal treatment between generations promotes those who are already insured. The results of this project are summarized in a discussion paper and are published 2013 in: “Perspektiven der Wirtschaftspolitik”.