What would be if we were Sweden?

Time and again, the well performing Swedish Notional Defined Contribution (NDC) pension system is mentioned as a model of how the German pension system could possibly be reformed. However, these suggestions are normally not taking into account the demographic differences between the two countries in an appropriate way. In this project we analyze the meaning of these differences for the development of a PAYG pension system exemplified by the German public pension insurance (GRV). Thereby, we want to show that the German Pension System would perform considerably better under the Swedish population. Additionally, we evaluate whether or not the Swedish NDC-system represents an alternative to the actual GRV-system. A NDC-system is a PAYG-system which is designed like a fully funded pension system. Normally, it has a constant contribution rate thus the budget restriction has to be guaranteed by adjusting the pension level in an appropriated way (this is also the case in Sweden). We answer the questions of this project by using the pension simulation model MEA-Pensim. First, we simulate the development of the GRV using population forecasts of both the German and Swedish population. In a second step, we replace the German Pension System through the Swedish NDC-system and analyze its behavior under different assumptions. In fact, we observe on the one hand side a better performance of the German Public Pension System under a Swedish population forecast. On the other side, we see that the Swedish NDC-system with its constant contribution rate would lead to unacceptable pension levels in Germany. Hence, the good performance of the Swedish NDC-system is a result of the less severe demographic challenges in Sweden and not a result of the differences in both pension systems. It makes no sense to define a system with a constant contribution rate in Germany. The results of the project have been summarized in a discussion paper and were published in "Sozialer Fortschritt".