This article by Ruth Schüler, an economist at the German Economic Institute, examines why pension reform remains politically elusive despite its urgency — and what it would take to build public support for the difficult choices ahead.
The German public pension system is under enormous pressure to reform due to demographic change. As the public insurance system is organized as a pay-as-you-go system, today’s contributors need to finance the pensions of current pensioners. The system is the prototype of a Bismarckian regime where contributions are converted into points and determine future pension entitlements. Redistributive elements exist for specific life events. With an ageing population fewer contributors have to cover pensions for a rising number of pensioners. The last reforms aimed at ensuring the financial sustainability of the pension system, such as raising the standard retirement age and introducing a subsidized private pension plan, date back two decades.
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