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Pension reform with variable retirement age: a simulation analysis for Germany*

Published online by Cambridge University Press:  16 February 2012

HANS FEHR
Affiliation:
Department of Economics, University of Würzburg, Sanderring 2, D-97070 Würzburg, GermanyNetspar, The Netherlands (e- mail: hans.fehr@uni-wuerzburg.de)
MANUEL KALLWEIT
Affiliation:
Department of Economics, University of Würzburg, Sanderring 2, D-97070 Würzburg, Germany
FABIAN KINDERMANN
Affiliation:
Department of Economics, University of Würzburg, Sanderring 2, D-97070 Würzburg, GermanyNetspar, The Netherlands

Abstract

The paper analyzes the recent pension reform in Germany which increases the normal retirement age by two years. The applied simulation model features a realistic demographic transition, distinguishes three skill classes with different life expectancies and allows individuals to choose their labor supply at the intensive and the extensive margin.

Our simulation results indicate that under the existing pension rules long-run contribution rates and old-age poverty rates will increase considerably. The proposed rise in the normal retirement age will postpone effective retirement by about one year and redistribute towards future cohorts. A stronger delay in effective retirement may be achieved by raising the actuarial adjustment of benefits.

Type
Articles
Copyright
Copyright © Cambridge University Press 2012

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