Giornate di Studio sulla Popolazione (Popdays), Giornate di Studio sulla Popolazione 2019

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The Impact of Population Aging on the German Statutory Pension System - A Probabilistic Approach
Patrizio Vanella, Miguel Angel Rodriguez Gonzalez, Christina Benita Wilke

##manager.scheduler.building##: Velodromo - Bocconi University
##manager.scheduler.room##: N03
Date: 2019-01-26 11:00 AM – 12:30 PM
Last modified: 2018-12-26

Abstract


The demographic transition is a phenomenon affecting many industrialized societies. These economies experience a decline in mortality alongside low fertility rates – a situation that puts social security systems under severe pressure. In order to implement appropriate reform measures, good forecasts of the future population structure and the resulting outlook for the pension system are needed. In this article, we use a probabilistic approach to forecast the number of pensioners in Germany up to the year 2040, considering trends in population development, labor force participation and early retirement as well as effects of further pension reforms. A principal component analysis is used for dimensionality reduction and consideration of cross-correlational effects between age- and sex-specific pension rates. Time series methods serve for inclusion of autocorrelation effects into the model and simulation of future uncertainty. The model predicts the numbers of old-age pensioners to increase by more than 9 million persons from 18.1 million in 2016 to 27.7 million in the median in 2040, even under increasing legal retirement ages. This shows a clear need for further reforms, if the German statutory pension system is to be sustainable in the long run.


Keywords


Population Aging; Stochastic Forecasting; Principal Component Analysis; Time Series Analy-sis; Applied Econometrics; Public Pension Systems; Social Policy