Rational pension reform

This paper is motivated by the idea to create, wherever possible, rational mechanisms that adapt pension systems automatically to a changed economic and demographic environment, rather than to leave such adaptations to discretionary high-profile pension reforms, which all too often stir political opposition. The paper delineates the theory behind such rational mechanisms, shows the advantages and limits of self-stabilizing pension systems, and compares the Swedish and the German approaches to rule-bound pension policy.