ifo Dresden: Older People Benefit and Younger People Lose Out With Germany’s Pension Package II

The German government’s plan to fix the pension level at 48% of the average earned income will mean the costs are shouldered solely by the working-age generation. However, people of retirement age and those soon to retire will be better off, according to calculations by ifo Dresden. That also applies if one considers that today’s contributors could also benefit from the higher pension level in the future.

“Our calculations show that all age groups younger than 26 are among the losers of the pension reform. Their additional contributions exceed their additional pension entitlements,” explains researcher Joachim Ragnitz, Managing Director ifo Dresden. “However, older age groups benefit, most of all those who are now 58 years old.”
Although the Pension Package II increases the pension level compared to existing legislation, most of the additional costs entailed will have to be borne by the generations in work in the form of higher contributions. The analysis that has now been presented differs from previous studies in that it looked at both the contributions to be paid and the expected pension payments for all age groups. They were converted to the present value assuming an interest rate of two percent.