Future pensions and changes in earnings histories (microsimulation analysis for Germany)

Basing on a microsimulation model, the integrated data-base from the German pension insurance and the German Socio-Economic Panel Study we analyze future pensions across cohorts born between 1937–71. The microsimulation model accounts for changes in the individuals’ earnings activities in the times of demographic changes in the context of the long-run pension reforms. We consider also the effects of increasing the statutory retirement age and decreasing the level of benefits resulting from the implementation of the sustainability factor (Nachhaltigkeitsfaktor). The outcomes of the simulations show that both the labor market developments since the unification and the recent pensions reform will have a significant impact on the level of retirement benefits, in particular those of younger cohorts. There are also clear differences between East and West Germany, between sexes and education levels. If the unfavorable tendencies present on the labor market since the unification are sustained, the level of future pensions among younger birth cohorts in East Germany will fall dramatically. However, even in the case of the more optimistic labor market scenario the overall negative trend in the evolution of pension benefits of the younger birth cohorts in Germany will be significantly weaker but not reversed.