Despite past reforms, the consequences of demographic change are placing further pressure on the pension-insurance system. How can the pension system’s future sustainability be ensured, and old-age poverty be prevented?
Despite numerous reforms over the last two decades, the statutory pension-insurance system remains under pressure due to demographic developments. Thanks to Germany’s currently robust labor-market conditions, the system’s finances are secure through the middle term. However, long-term projections indicate that a rapid increase in the contribution rate will likely be necessary beginning around 2030. At the same time, the pension level, and thus the claims received by the average pensioner in his or her old age, will decline further.
This development is problematic in several respects. Rising contribution rates will represent a further burden on labor, making employment in Germany less attractive. A decrease in the pension level will involve a greater number of retirees whose pensions will not be sufficient to secure their standard of living. This will primarily affect those people who are unable to contribute continuously to the pension system due to unemployment, time spent caring for others or a period of stay-at-home parenting.
Finally, this development calls the legitimacy of the contribution-based pay-as-you-go system into question for the younger generations, who will be responsible for high contributions but can expect only comparatively low pension payments in the future.
Further reforms are inevitable
While demographic developments themselves can be influenced only to a limited extent – for instance, though a higher rate of immigration from abroad – the negative effects on the pension system can be mitigated through the implementation of forward-looking policy. Given the development of the population, it is important to engage in discussions about policy options and reform steps at an early stage. For example, a strengthening of the pension system’s second and third pillars – the occupational and private provisions – can compensate for declining pension levels in the statutory old-age insurance system.
The average retirement age will necessarily need to rise further, in order that time in employment does not fall out of sync with long-term increases in life expectancy. A first step in this direction was made with the so-called pension at 67 policy. However, care must be taken to further improve working conditions and career opportunities for older workers, in order to ensure their inclusion into the workforce. In addition, making the retirement age more flexible can help address the needs of a heterogeneously aging population.
With our project activities, we – as a source of ideas and a facilitating actor – want to make a contribution to dealing successfully with the consequences of demographic change. Research-based studies highlight developments and policy options in the statutory and private pension systems, assessing them on the basis of sustainability and intergenerational justice. In addition, we want to enrich policy and public debate through workshops and conferences held in close cooperation with other partners.
- What reforms can help support the statutory pension-insurance system?
- How can old-age poverty be effectively prevented in the future?
- What is the proper relationship between the three pillars of statutory, private and occupational pension programs?
- How can the transition from working life to retirement be made more flexible?