Scenarios of a Sustainable Development of the German Public Pension Insurance

During 2016 a new policy debate about the German public pension system has started. The focus of the discussion has been the intergenerational distribution of the financial burden arising from demographic change. Among other things, it has been suggested to fix the pension level (defined as the pension of a standard pensioner relative to the average income) at a rate higher than the current minimum level of 43%. This project has three objectives. First, we will provide long-term projections of the contribution rate and the pension level, which are the most important determinants of the German Public Pension Insurance (GRV). Second, we will calculate the consequences of several pension reform proposals which are debated. Third, we will present several alternative reform options targeted at adjusting the development of the GRV to future demographic challenges. The main findings of the project are: up to the year 2030 – which is the time horizon of the official pension forecast – the development of the GRV is within the targets prescribed by law (§154 SGB IV). Following the current legal situation the contribution rate will, however, exceed the threshold of 22% in 2031 shortly after the official forecast ends. The net pension level before taxes will be lower than the prescribed minimum of 43% after 2036. Fixing the net pension level at 46% (50%) would result in additional costs of about 17.5 (38) billion Euro each year and a contribution rate of 24% (26%) by 2040. On the other hand, a pension level above 43% could be reached without increasing the contribution rate above 23% by adapting the age-specific parameters of the GRV automatically to changes in life expectancy. In the end, there is consequently no leeway to increase the generosity of the pension system now. Instead, reform steps working towards the long-term sustainability of the system should be taken. The results of the project are summarized in a discussion paper and were published in "Ifo Schnelldienst" in September 2016. The results of our forecast entered the policy debate during 2016 on various occasions and were picked up in public media.