Winfried Schmähl

Dismantling an Earnings-Related Social Pension Scheme: Germany's New Pension Policy

A paradigm shift in pension policy decided by the German red–green coalition government will considerably affect the level and structure of pension benefits as well as the mix of public and private old-age security arrangements. The article starts with a brief outline of the pension schemes as they had been designed before the recent decisions, and with a few remarks on the reasons for current reform debates. The major measures of the 2001 Pension Reform are then described. The focus of the article is on the effects of the reform for (personal) income distribution and institutional design. A partial shift from (mandatory) public (pay-as-you-go financed) pensions to (voluntary) private (capital-funded) pensions and from defined benefit towards defined contribution will, among other things, reduce the benefit level in the social pension insurance. A large number of contributors – even after many years of paying contributions – will only receive benefits below the social assistance level. It can be expected that this development will transform the present earnings-related statutory pension scheme – which has a strong contribution–benefit link and is aimed at income smoothing over the lifecycle – into a basic, highly redistributive pension scheme, aimed mainly at avoiding poverty. Income inequality in old age is expected to increase as a result of the new strategy in pension policy.

Demographic change and social security

This paper gives an overview over some central aspects of the highly complex topic, pointing out, e.g. the need for more longitudinal research in understanding effects of structural changes in demography and economy on social security. Starting from challenges by an ageing population for health and pension schemes it is briefly discussed whether changes in labour force participation or restructuring public expenditure can soften financing problems. Concerning reforms in pension schemes first changing retirement ages is briefly discussed and then some of the shortcomings in the debate on capital funding versus pay-as-you-go fincancing.

Financing Social Security in Germany: Proposals for Changing its Structure and Some Possible Effects

There is a worldwide discussion of the scope, level, and structure of social security. In Western European countries the costs of social security and possibilities for reducing them are at the center of the discussion. Costs include the direct financial burden together with disincentive effects in labor and capital markets and with implications for economic growth. Financing is often at the center of this debate. This discussion is hardly new. 1 Debates on the pros and cons of the size and design of social security, however, often have a distinct bias, because social security is mainly regarded as solely an element of costs. Benefits seem to be taken for granted or are more or less neglected in the discussion. Compared to costs, benefits are often not as easy to quantify. This still remains an important task, especially for empirical research.

Perspektiven der Alterssicherungspolitik in Deutschland –Über Konzeptionen, Vorschläge und einen angestrebten Paradigmenwechsel

Abstract The paper outlines different concepts for designing pension policies linked to current reform proposals in Germany. The role of the state, mandatory or voluntary savings for old age and the primary objectives and types of income redistribution aimed at by the design of pension schemes are central. In contrast to the economic debate which is dominated by the topic pay-as-you-go (PAYG) versus funding, the author argues that it is especially important to deal with changes within the major German PAYG-financed scheme in order to realize positive economic and social effects, especially by a close contribution±benefit link as part of a broader reform concept. There are, however, limits to an overall reduction of the pension level in such a pension scheme, if a close contribution±benefit link is to remain politically acceptable. Here this is demonstrated by current reform proposals for substituting a major part of PAYG pensions by funded pensions in Germany. The paper also points out some hidden, implicit and long-term effects of such a strategy. Finally, the author refers to some often neglected effects in mainstream proposals for a major shift towards funding. 430

Pay-As-You-Go Versus Capital Funding: Towards a More Balanced View in Pension Policy — Some Concluding Remarks

There is a world-wide discussion on pension reform. The reasons, however, often differ because of specific conditions and expected developments in economic, demographic, household structure or political conditions, as well as in country-specific experiences and preferences for certain objectives. It is obvious that countries of the European Union differ concerning these aspects from for example developing countries and countries in transition from a planned to a market economy. Countries of the European Union are far from being homogenous. This makes obvious that general blueprints for reform are inadequate. Nevertheless, several general topics and problems exist. Therefore, international exchange of experiences on (good or best) practices and on reform strategies are a timely issue. The papers published here try to contribute to this discussion. The aims are especially twofold: Contributing to this discussion by avoiding certain biases that often exist especially in debating the financing methods, pay-as-you-go financing and (pre-)funding of pensions. The second aim is to discuss ways in which old-age pension systems might develop in the future: How can the statutory pension systems and the pension systems in general meet the present and future challenges? Such discussions gain also from an exchange between academic experts and experts from organizations involved in designing, implementing and regulating pension schemes in different member states of the European Union.

Soziale Sicherung im Lebenslauf: finanzielle Aspekte in längerfristiger Perspektive am Beispiel der Alterssicherung in Deutschland

Zunehmende Risiken im Lebenslauf und die Forderung nach vermehrter individueller Flexibilitat stellen eine Herausforderung fur die adaquate Gestaltung sozialer Sicherung dar, z. B. fur die Alterssicherung. In diesem Beitrag wird dargestellt, wie soziale Risiken in offentlichen und (subventionierten) privaten Alterssicherungssystemen (einschlieslich betrieblicher Einrichtungen) berucksichtigt werden. Dies erfolgt am Beispiel der Situation in Deutschland. Ein solcher Vergleich unterschiedlicher Sicherungssysteme wird um so wichtiger, da in vielen Landern die Rolle des Staates als Produzent sozialer Leistungen reduziert wird. Ausgehend von Zielen und Konzeptionen zur Gestaltung sozialer Sicherung im Alter stehen im Zentrum dieses Beitrags Auswirkungen verschiedener Typen offentlicher und privater Alterssicherungssysteme auf die Einkommenslage im Alter bei Eintritt bestimmter sozialer Risiken, wie Einkommensverlust durch Arbeitslosigkeit, Krankheit, Pflege von Kindern. Dabei wird der Einsatz unterschiedlicher Instrumente - unter ihnen der von Zeitkonten - betrachtet. Schlieslich wird die Verlagerung von Risiken und Verantwortung im Falle zumindest partieller Privatisierung sozialer Sicherung diskutiert - Verlagerungen vom Staat auf private Haushalte, von Arbeitgebern auf Arbeitnehmer. Fur den Fall, dass private Sicherungssysteme obligatorisch werden, ist zu erwarten, dass sie mit zu einem Instrument der staatlichen Sozialpolitik werden und manche der sozialen Risiken zu berucksichtigen haben, wie dies bislang in staatlichen Systemen erfolgte.

Leben die „Alten“ auf Kosten der „Jungen“?Anmerkungen zur Belastungsverteilung zwischen „Generationen“ in einer alternden Bevölkerung aus ökonomischer Perspektive

Zusammenfassung Viele öffentliche und wissenschaftliche Diskussionen über die Auswirkungen eines steigenden Anteils älterer Menschen sind von Einseitigkeiten geprägt, indem diese primär in ökonomischen Belastungen gesehen werden. Steigende Beitragssätze in der Renten-, Kranken- und Pflegeversicherung, aber auch der Alterungsprozess als Hemmschuh für die gesamtwirtschaftliche Entwicklung werden betont. Der Beitrag versucht, zu einer ausgewogeneren Sicht beizutragen. Dazu dient bereits die Unterscheidung zwischen einer auf eine Periode bezogenen Querschnitts- und einer zeitlichen Längsschnittsperspektive, die zu anderen Aussagen über Verteilungseffekte führt. Ältere als „ökonomisch Inaktive“ zu bezeichnen, verengt den Blick auf Erwerbstätigkeit, blendet andere Formen von Arbeit (Betreuung, Pflege) aus wie auch die ökonomischen Aktivitäten durch den Einsatz von Vermögen, die Bedeutung Älterer als Konsumenten und Mitfinanzierende von Staatsausgaben. Auf die gleichfalls verengte Sicht von „Generationenbilanzen“, die nur stattliche Ausgaben und einen Teil der öffentlichen Einnahmen berücksichtigen, nicht aber private, insbesondere intrafamiliäre Transfers, wird hingewiesen. In ökonomischer Hinsicht ist eine umfassende Berücksichtigung von Einrichtungen und Maßnahmen im Hinblick auf ihre Bedeutung für die ökonomische Situation von Generationen (Alterskohorten) erforderlich. Abschließend wird die wichtige Rolle von Investitionen in Humankapital als maßgeblichem Einflussfaktor für Produktivität in der Volkswirtschaft hervorgehoben. Dazu gehört auch die Qualifizierung u.a. älterer Arbeitnehmer. Eine integrative, bereichsübergreifende Sicht ist erforderlich, will man die Verteilung zwischen Generationen, aber auch die Verteilung innerhalb von Generationen angemessen analysieren. Eine differenzierte Verteilungsberichterstattung – die in Deutschland nach wie vor fehlt – wäre hierfür eine wichtige Voraussetzung.Summary Public and scientific discussion on the effects of an aging population is often biased: aging is primarily seen as an economic burden. Increasing contribution rates in pension schemes, health and long-term care insurance are highlighted. This paper tries to provide a more balanced view. The distinction between a cross-sectional and a longitudinal view already gives different information on distributional effects. Labeling older people as „economically inactive“ is a much too narrow perspective focused on the activity on the labor market only. Other types of work are neglected such as caring for children or frail elderly as well as economic activities from wealth, consumption as well as paying taxes to finance public expenditure. The approach of “generational accounting” is also narrow, focusing on public expenditure, social insurance contributions and only some types of taxes, but not dealing with private, especially intrafamily transfers. In economic terms, a comprehensive approach is needed regarding the effect of institutions and measures on the economic situation of cohorts. The role of investment in human capital is mentioned as a decisive factor for productivity in a country. Further education and retraining of older workers is one important element. An integrative approach dealing with the different fields of activities is needed when analyzing the intergenerational as well as the intragenerational distribution. This requires an elaborated and differentiated reporting of distributional effects. This important precondition, however, does not exist in Germany.

Increasing life expectancy, retirement age, and pension reform in the German context.

In many industrialized countries, a rising percentage of the elderly in the population is often seen as an important challenge to the economy and to society because of the aging of ‘‘baby boomers’’; smaller, younger cohorts, due to reduced fertility rates; and increasing life expectancy, especially of the elderly. In public debate, aging mainly is seen as a problem: discussion focuses on costs rather than benefits. The impact of aging populations on social securitypension schemes, health care, and long-term care insuranceis a major topic of political and scientific discussion in many countries. ‘‘Can we afford to grow older?’’ is an often-used phrase (Aaron, Bosworth, & Burtless, 1989; Bovenberg & van der Linden, 1997; Disney, 1996). Political proposals and decisions in many countries are aiming at a reduction of future expenditure development, especially in regard to public pension schemes.

Fundamental Decisions for the Reform of Pension Systems

This paper outlines the fundamental options for the design of pension systems in any country. The financing and benefits structure is described, with particular reference to distribution policy objectives. The need for thorough preparation to back up decision-making is emphasized, together with the need to take into account the many and varied interactions with other institutions and fields, particularly the long-term effects of changes and the prevailing conditions in the country concerned. Reforms often involve long-term transitional arrangements, so that different forms of pension provision should not be compared in isolation, although this is often done when comparing pay-as-you-go financing and capital funding. Moreover, a close link can be established between contributions and the subsequent pension in state pay-as-you-go schemes as well as private, funded pension provision. Finally, in the decision-making process, more attention needs to be paid to the flow of information to decision-makers, citizens and the media in order to increase the acceptability of reform measures.

Rentenanpassung und Altersarmut

In einem dynamischen Wirtschaftsprozess kann Stillstand relativen Ruckschritt bedeuten. Bei im Zeitablauf variierenden, aber durchschnittlich insgesamt steigenden Erwerbseinkunften oder Preisen mussten sich beispielsweise auch die Alterseinkommen erhohen, soll das Ziel der Lebensstandardsicherung oder der Vermeidung materieller Armut im Alter erreicht werden.2