Personal assets and pension reform : How well prepared are the Germans?

Demographic change presents major financing problems for the pay-as-you-go pension system. In response to these problems, the 2001 and 2004 German pension reforms reduced the statuory level of benefits from the pay-as-you system. The resulting pension gap is supposed to be filled by funded second and third pillar private pensions. This paper examines the extent to which households are in a position today to close this gap with their personal assets, assuming that they stick to their current saving and asset accumulation behaviour. Four critical factors are relevant to this issue: 1. the anticipated life expectancy, 2. the level of personal assets on retirement, 3. the expected age of retirement and 4. the anticipated interest rate. Our results indicate that about a third of German households will not be able to fill the pension gap unless they were to change their current savings behaviour