DP2175 The Crisis of Germany's Pension Insurance System and How It Can Be Resolved

Author(s): Hans-Werner Sinn
Publication Date: June 1999
Keyword(s): Germany, Pay-As-You-Go System, Pension Insurance, Savings
JEL(s): H55
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2175

The paper discusses the options for a reform of the German pension system using a model developed at CES for the German Council of economic advisors to the Federal Ministry of Economics and Research. It is argued that the German pay-as-you-go-system is efficient in a present value sense but will nevertheless need the support of a funded system to avoid a financial crisis. The paper recommends obligatory private savings at a variable rate where the time path of the savings rate is chosen so as to stabilize the sum of this rate and the pay-as-you-go contribution rate, given the time path of pensions as defined in the present system.