Changes in Retirement Income Provision in Germany and the US Since the 1980s: Implications for Older Workers and Their Meaning for Pension Reform in Europe

Pension reform has featured high on the European policy agenda during recent decades. Demographic ageing and more general budgetary pressures have triggered far-reaching pension reforms. Even until the 1990s many countries promoted early retirement to reduce unemployment. Since then, however, encouraging later retirement has become a top policy priority. Cutbacks in public (early) retirement benefits were a key element of this strategy, often reinforced by reforms of other welfare state programs such as unemployment or disability insurance. A second major trend across Europe has been to strengthen complementary (occupational and individual private) pensions to offset falling public replacement rates.

The paper analyzes changes in retirement policy and their consequences for older workers in Germany and the US since the 1980s: Germany began to scale back early retirement options already in the mid-1990s, enabling to trace real-life consequences for older workers. The US has long been an important reference in European debates about the welfare state. In the context of pension reform it is an interesting comparison case because it has traditionally emphasized complementary pensions more than most European countries. Yet it also experienced dramatic changes over recent decades, as (riskier) defined-contribution plans have replaced (less risky) defined-benefit plans. The paper provides an overview of these developments and uses household panel data (GSOEP, PSID) to better understand their impact on the financial situation of older workers and retirees. A focus is on inequalities by education level and on the impact of involuntary early retirement due to health problems or unemployment.