Old-age poverty : the household perspective : a microsimulation approach of pension entitlements in Germany

Providing a decent living standard and preventing old-age poverty are the two major challenges of pension insurance schemes. Replacement rates below the poverty line despite many years of contribution represent a major challenge for public pension schemes with respect to the systems "raison d’être". The focus of the present paper turns away from individual perspective and considers household retirement incomes in the light of analysing old-age poverty and designing (minimum) pension policies. Using household survey and administrative data, the paper examines actual needs of pensioner households in relation to the means-tested minimum pension. The simulation results suggest that 56% of those living in couple households would achieve a pension level lower than means-tested minimum pension if they were considered at the individual level. The findings clearly indicate gender discrepancies: households represent a noticeable insurance function. Especially women are better off if old-age poverty analysis integrates other household incomes. The German government intends to implement the Grundrente in 2019. This minimum pension policy entitles individuals who spent more than 35 contribution years to a 10% mark-up on the means-tested minimum pension. The microsimulation analysis also provides important findings regarding the extent of entitled beneficiaries. Whilst 30% of all new pensions would benefit from an individual perspective, after means-testing only 3% at all will meet the conditions of 35 contribution years which strongly questions the target orientation of the Grundrente.