Policy Implications for the German Pension System under the Consideration of Low Interest Rates and Demographic Change Exam Number: Y3850499 Department of Politics MA in Public Policy: European Public Policy Mundus MAPP Student Cohort (2016-18) Word Count: 12.633 CEU eTD Collection 1 Abstract Because of the progressive ageing of Germanys society, the German retirement system has already been put under significant pressure and this development is likely going to continue. Therefore, eventually the pension system reform will become inevitable. Comprehensive pension system reform has always been associated with protracted and lengthy challenges. Due to its general notion and the fact that almost the entire society is either directly or indirectly affected, many different hurdles as well as political and institutional constraints have to be overcome. Previous pension system reforms in Germany can be characterised as a rather gradual transformation without a complete overthrow of the existing status quo. Although, it is tempting to think about large-scale reform proposals, the actual feasibility of each reform proposal must be noted. Adjusting the legal retirement age towards the prospective life expectancy in combination with an expansion of child related pension benefits and improved financial literacy, hold the potential to offset the negative externalities that result from the progressive ageing of the society. However, these suggestions face extensive constraints regarding their actual viability. At present, current pension policies in Germany must be characterised as mostly adhering to the status quo, providing little room for innovation and even reversing previously enacted improvements. Furthermore, a general lack of political willingness to reform can be identified. In combination with the ever growing political influence of pensioners, comprehensive pension system reform is much need in CEU eTD Collection Germany however, not very likely at the moment. 2 Table of Content Abstract .................................................................................................................................................... 2 Introduction ............................................................................................................................................. 4 Problem Definition ................................................................................................................................... 5 Political Probems ................................................................................................................................. 5 Technical Probems ............................................................................................................................... 8 Methodology & Research Design ..........................................................................................................12 Research Question .............................................................................................................................12 Systematic Review .............................................................................................................................13 Expert Interviews ...............................................................................................................................14 The German Pension System .................................................................................................................16 Historical Overview about Previous Pension Reforms ......................................................................17 Statutory Pension Scheme .................................................................................................................19 Occupational Pension Provision ........................................................................................................20 Private Pension Provision ..................................................................................................................21 Theoretical Procedure German Pension System Reform ..................................................................22 Analysis & Policy Options.......................................................................................................................24 Increasing the Legal Retirement Age .................................................................................................24 Incentivise People to Work Longer ................................................................................................27 Link Legal Retirement to Life Expectancy ......................................................................................28 Strengthening Second & Third Pillar ..................................................................................................28 Riester Rente .................................................................................................................................28 Occupational Pension Provision ....................................................................................................32 Targeted Migration ............................................................................................................................34 Adjustment of the Pension Formula ..................................................................................................34 Increase Fertility Rate ........................................................................................................................35 Child Pension .....................................................................................................................................36 Include Public Servants & Independent Workers ..............................................................................37 Improve Financial Literacy .................................................................................................................39 CEU eTD Collection Political & Institutional Constraints .......................................................................................................40 Likelihood of Adoption ..........................................................................................................................42 Final Recommendations & Conclusion ..................................................................................................47 Appendices ............................................................................................................................................49 Interview Markus Kurth .....................................................................................................................49 Interview Prof. Dr. Gert G. Wagner ...................................................................................................53 3 Interview Dr. Jochen Pimpertz...........................................................................................................55 Interview Ralf Kapschack ...................................................................................................................59 Interview Thomas Rogowski ..............................................................................................................64 Systematic Review .............................................................................................................................69 Overvie Path Dependecy Pension System Reform (Own Presentation) ...........................................86 Thesis Proposal ..................................................................................................................................87 References ...........................................................................................................................................109 Research Papers/Books ...................................................................................................................109 Studies Systematic Review ..............................................................................................................113 Online Publications ..........................................................................................................................116 Laws .................................................................................................................................................118 Introduction The German retirement system will be facing fundamental challenges in the future. Due to its framework, with its first pillar being a classical pay-as-you-go system (PAYG) as well as a progressively ageing society, more and more pensioners are going to depend on an ever decreasing number of contributors. To prevent the retirement system from collapsing, three broad adjusting mechanisms are feasible: lowering pension benefits, increasing pension contributions or raising the legal retirement age. Neither of these policy options are politically desirable and are most likely going to face broad opposition from German society. Nevertheless, to avoid extensive old age poverty and skyrocketing contribution rates, a fundamental and comprehensive pension reform is inevitable. This Thesis is going to contribute to the current academic discussion by providing an in depth CEU eTD Collection analysis of the German retirement system and based on the findings obtained, I am going to establish targeted reform recommendations that can be applied to the current situation in Germany. Usually, academic papers tend to focus on either the analysis of the current state and