Toward Funded Civil Servant Pensions in Germany: Optimizing the Transition


  • Prof. Dr. Raimond Maurer
  • Prof. Olivia S. Mitchell
  • Dr. Ralph Rogalla

As government budgets come under increased financial pressure, it is clear that it will become increasingly important to shift the tax-sponsored PAYGO German civil servant pension system into a more soundly financed model. Such models, much discussed in the Western world, center around moving these systems toward a funded position. Of course, the transition path will be accompanied by some costs, mainly the additional payments needed to build up the capital assets in the funded pension plan.

The goal of our study is to evaluate the potential time path and size of these costs in the context of two commonly acknowledged transition strategies. First, the introduction of a supplementary tax-sponsored pension fund, whose proceeds are used to relieve the state budget from (parts of) the pension payments. Second, the introduction of defined contribution elements, financed by the civil servants out of compensational proceeds from a simultaneous reduction in the level of defined benefits.

This project, a cooperation with Professor Olivia S. Mitchell from The Wharton School of the University of Pennsylvania, is sponsored by the Alexander von Humboldt Foundation within the TransCoop Program.

Start: 05/2005   End: 10/2006