A micro-perspective on funding in the German pension reform of 2001

Reforming the social security system is one of the most pressing issues in Germany. In the face of declining birth rates and an aging population, the financing of the pension system in the current Pay-as-you-go system is on the verge of collapsing. In order to alleviate the problem of sustaining the PAYG pension system, the government decided to reduce future benefits from the PAYG pension system and support the funded second and third pillar of the pension system. Occupational and private pension savings are tax preferred and subsidized in order to provide additional pension benefits to close the gap due to lower PAYG benefits. The funded system for old-age pension savings is a complex system of a wide variety of pension vehicles, tax incentives and subsidies. Participation and acceptance of the newly introduced „Riester-Pension“ as well as the instruments of occupational pension does not fulfil expectations. This dissertation analyses the results of the pension reform from a theoretical, institutional and individual point of view. Focus of the analysis is the regulatory framework, the incentive system, as well as the structure of occupational and private pensions in Germany.