Growing old in dignity

Research Paper (undergraduate) from the year 2011 in the subject Politics - Political Systems - Germany, grade: 1,0, University of applied sciences, Düsseldorf, course: Economics - MBA, Master of Business Administration, language: English, abstract: This paper surveys the situation of the German pension system after a sequence of reforms

which started as a fully funded system implemented by Bismarck during the 1880s, with a

mandatory retirement age of 70 years when male life expectancy at birth was less than 45

years. Today, life expectancy for men is more than 80 years.

After a long and arduous debate in the German Bundestag, agreements on a comprehensive

pension reform resulted in the pension reform of 1957, which mainly established changes

such as the normal retirement age at 65, the retirement at the age of 60 for elderly

unemployed, the retirement for women at the age of 60 and, at last, the introduction of

dynamic benefits indexed to gross wages which had an immediate impact on the economic

wellness of current retirees.

Thereafter, the 1972 reform made the German pension system one of the most generous of

the world, as it mainly opened the public pension insurance system to all workers with

generous terms for back-payment of contributions and eased the terms and conditions for

early retirement by the implementation of the so-called ¿flexible retirement¿, as discussed in

chapter 1 of this paper.

The following pension reforms discussed in this paper are the ¿Riester reform¿ of 2001 with

the following main objectives: the sustainability of contribution rates in order to secure the

long-term stability of pension levels and the spread of supplementary private pension savings,

and continuing with the efforts of the Rürup commission which culminated in the ¿Rürup

reform¿ of 2004 which the objective to stabilize contribution rates while at the same time

ensuring appropriate future pension levels.

Based on the above, it can be concluded that on the whole the sequence of pension reforms in

Germany has successfully converted what was once a so called monolithic Bismarckian public

insurance system to an efficient multi-pillar. Given this situation, as discussed in chapter 2 of

this paper, the German pension system nowadays are based in a three-pillar system, consisting

of the following elements: The first and most important pillar is universal and mandatory,

organized as a pay-as-you-go system. The second pillar is the voluntary occupational pension

system which is also universal and mandatory, but capital funded. The third pillar is also

capital funded, but organized as a voluntary private provision system.