Pension Policies in the Shadow of the Baby Boomers

Tasks

The Dresden branch of the ifo Institute forecasts pension expenditures until 2050 on behalf of the Friedrich Naumann Foundation for Freedom. The main goal is to separate the costs of aging and the costs of recent pension reforms (since 2014). The project is joint work of the ifo Institute and Prof. Dr. Martin Werding (Ruhr-University Bochum).

Methods

Pension expenditures are simulated using a comprehensive growth model. Expenditures are forecasted with and without the recent pension reforms until 2050; expenditures are estimated with and without all new pension benefits introduced after 2014 to assess the effects of recent pension policies. For illustrative purposes, the increase in expenditures is translated into relevant key figures (such as changes in the VAT rate).

Data and other sources

Economic and population figures from 1950 onwards are used and projected until the year 2050.

Results

The study shows that demographic change will take full effect in the coming decades and cause enormous cost increases. The pension packages of recent years are exacerbating this development considerably, although average pensioners are hardly benefiting from them. Over the next ten years, the additional age-related burdens on pension insurance will double. The continuation of the double-lock line after 2025 would be an additional test for the federal budget and thus for taxpayers. If it were financed solely by value-added tax, its standard rate would have to rise from 19% today to around 30% by 2050.