A Model under Siege: A Case Study of the Germany Retirement Insurance System

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Abstract
This case study evaluates the positive and negative features of the German public pension system and discusses three reasons for its increasing perceived and real difficulties: maturation, negative incentive effects, and the well-known problems of demographic change. It argues that the German pay-as-you-go system in its current form may be able to limp through the coming decades but will cease to be the exemplary Bismarckian machine that has created generous retirement incomes at reasonable tax rates. Current policy proposals are ''parametric'' in the sense of patching up problems as they come along. This is unfortunate as a few but incisive design changes and some degree of prefunding could rescue the many positive aspects of the German retirement insurance system.
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