GERMANY - Bert Rürup, the economist who headed Germany’s commission on pensions, has said there are no safe pensions.
After analysing advantages and disadvantages of the pay-as-you-go and the capital funding systems, Rürup comes to the conclusion that there is “no safe, guaranteed pensions”.
“The economic costs and the real economic consequences of an aging population cannot be deleted by reforms,” he wrote in an article for the US pensioner group AARP.
Pension promises, he argued, are “tainted with uncertainty” - just like the future of the economy – and nor there can be guarantee of a standard of living “in the true sense of the word”.
“The one-dimensional state pension systems must be replaced by multi-dimensional protection systems consisting of public and private elements which will then jointly guarantee this standard of living.”
“There are many arguments which support the view that, merely for reasons of risk heading, an ‘efficient’ and thus also ‘safe’ old-age security system should not only rely on one single financing principle, but should be a system based on mixed financing,” he stated.
He said the solution could only “be a political one”, as there is no scientific answer as to the right solutions between pay-as-you-go and capital funding.
“And this answer does not only depend on confidence in the long-term stability of capital markets, but also an assessment of ‘distributive acceptability’ in connection with a partial transition from pay-as-you-go to a full funding system,” Rürup argued.
He goes on to say that there will be a permanent "yield advantage" for the capital funding system, if in the long term, interest rates are higher than growth.
But “simulation studies of an even partial transition to the capital funding system, therefore, reveal that there will always be an additional burden on gainfully employed persons creating a "sandwich" generation”.
The more far-reaching the change, the higher additional expenditures for old-age provision during the introduction of the funded system.
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