Recently the reduction in benefits under the PAYG system and the heigthened focus on fully-funded schemes has come under increasing fire and attention drawn on the advantages of the PAYG system. This criticism is easy to address by comparing the performance of PAYG and fully-funded models, which can be done by looking at the rates of return on both. Against the backdrop of population ageing, it emerges that fully-funded pension provision yields higher returns than the PAYG system and that in some cases up to 50 % of contributions to the statutory pension scheme have a tax character.

The specter of old age poverty is looming large in Germany.Pension reforms, high unemployment and low earned incomes could conspire to produce extremely meager pension incomes foran ever-larger share of pensioners in the future. One way of avoiding poverty in old age is by making additional private financial provision, especially with Riester pensions (a statesubsidized privately funded pension scheme named for the labor minister who introduced it). Recently, however, this scheme has been falsely discredited by claims that it is not worthwhile for low earners. In the following we show that Riester pensions do pay off for lower earners as well and that they are key to avoiding old age poverty. Other proposals, such as rolling back pension overhauls or even the introduction of minimum wages, are counter-productive.

The financial assets of private households in Germany totaled EUR 4,068bn at the end of 2004, around twice the amount recorded at the beginning of the 1990s. Between 1991 and 2004 the average annual real yield on these assets amounted to 2.1 %. It is striking that over the same period the USA achieved an average real yield of 3.6 %. One of the main reasons for this is the higher share of equities in the USA (22 %) compared with Germany (6.5 %). By bringing the equity ratio into line with US levels, the total portfolio yield would increase by 0.6 percentage points. With financial assets of EUR 4 trillion, the yield improvement to be expected in the long term would correspond to annual asset growth of EUR 24bn – almost 20 % of total financial asset acquisition in 2004.

A glance at pension systems in the EU shows them differing as least as much as economic developments in the various EU countries. Everywhere, however, latter-year trends point in the same direction, with fewer state benefits and more private provision. Demographic development simply leaves most countries no other choice. This article examines the progress made on reform of Europe’s pension systems.

Everywhere, private provision for old age is becoming more important. There is scarcely a country in Europe where demographic development has not already led, or will lead, to cuts in the level of state pensions. Fully funded private and occupational pension plans are becoming an ever more vital source of financial security in old age. Even in the United States, which is in a much more favorable demographic situation than Europe, the government is moving for the partial conversion of pay-as-you-go (PAYG) pensions to a more fully funded type of retirement-income regime. What possibilities do people have of stocking up dwindling payments from PAYG pension systems with their own assets? How do the United States and the EU-15 compare?

First reforms of the welfare system in the People's Republic of China were initiated in the eighties, but the restructuring has still not reached completion. To date only the urban population is entitled to receive welfare benefits while the majority, living in rural areas, is still largely precluded. The welfare state is in urgent need of expansion in the face of rising unemployment, an increasingly aging population and crumbling social structures.