Pension policies for an aging society

Pension reform is a critical issue in policy and economic research. Georg Hirte develops a uniform framework to analyze the effects of pension reforms on redistribution and efficiency across generations, as well as their political feasibility. He provides an in-depth discussion of current policies in Germany and examines various proposals aimed at addressing challenges posed by an aging population. These proposals include smoothing contribution rates, raising the retirement age, transitioning to tax financing, accumulating capital within the pension system, and moving towards a partially or fully funded system. The quantitative analysis utilizes the Auerbach-Kotlikoff model, incorporating key changes such as endogenous retirement decisions, increased life expectancy, age-dependent unemployment rates, implicit tax rates, and the connections between the pension system and health, long-term care, and unemployment insurance. Hirte's findings indicate significant efficiency effects, suggesting that transitioning to taxation-based pension financing is the most favorable reform regarding welfare, efficiency, and redistribution, with majority voter support. Conversely, he reveals that a shift to a fully funded system or basic pensions faces opposition from most voters.