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The misery of private pension provision in Germany is one of the great social policy taboos. Lindner’s idea that everyone can save tax-free for retirement up to a certain limit is convincing – but unfortunately could fail.
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For several weeks now, a plan has been floating around the capital that deserves at least a brief mention – as a testament to the fact that there are still good and sensible reform ideas, even in this often and rightly criticized traffic light coalition. This is all the more true in the not unlikely event that the plan does not make it through the cabinet and the Bundestag. We are talking about the retirement savings account.
For many years now, the misery of private pension provision in Germany has been one of the country’s major social policy taboos. Everyone knows about it, but nobody does anything. First and foremost the SPD, which evidently does not want to be given the reputation of being a henchman of the financial industry again – after the introduction of the Riester pension almost 25 years ago. The result is billions in state subsidies that continue to flow into overpriced insurance products every year and around 15 million Riester contracts, a large proportion of which are no longer being saved – they are simply not worth it for many people.
This problem has been known for many years – but nothing has changed. For a few weeks now, however, Christian Lindner, the chairman of the FDP, who conveniently also happens to be the responsible finance minister, has been putting forward an idea for reforming private pension provision that is so simple and convincing that it is hard to believe in this over-regulated country: the state will allow a pension fund in which everyone can save tax-free for their later retirement up to a certain limit. How exactly this is done is largely up to each individual – whether with a fund policy, with insurance, with individual shares or quite simply with a passive index fund.
Retirement provision: K401 account in the USA makes stock saving easy
The USA has had such a solution for many years with the famous K401 account. The employer often also contributes to the payments. There are good reasons to criticize the social security systems in the USA – the K401 is not one of them. The fact that Americans on average (!) have many times more financial assets than we Germans is partly due to a distortion caused by the breathtaking wealth of a few in the USA, but also to the widespread use of pension provision on the stock market – thanks to this model.
Only in Germany do politicians (especially from the SPD) like to say that they prefer to invest their money in savings accounts, because speculation on the stock market is too risky for them. Stock market = speculation, that is how the debate about sensible private pension provision has been going in Germany for years – despite all the experiences in countless countries around us. Such ignorance must be something we can afford – but we can only really do so if our own pension comes from the taxpayer.
However, the plans that Lindner is currently working on and which he likes to mention here and there in recent weeks (after all, there are elections coming up) are sensible and long overdue: pension savers will be able to invest around 2,100 euros per year in the new tax-free portfolio, and people with lower incomes will be able to apply for a state subsidy, as with Riester policies. In old age, the payouts will then have to be taxed.
Lindner has announced a draft law for next September, and he is at least pretending that he has the support of his coalition partners, the SPD and the Greens. But that is hard to believe: In addition to ideology, from the perspective of at least the SPD, the expected tax shortfalls speak against the plan – and they would also hardly be compatible with Lindner’s own budget policy guidelines. Lindner knowingly avoids quantifying the costs of his plan.
The moment for a broader entry into equity investments is not only long overdue, it would come at a very sensible time. For the first time in years, the European Central Bank announced this week that it would lower interest rates. Banks will therefore reduce their recently very attractive interest rates on current accounts. The neobroker Trade Republic has already announced this. Even if future developments are uncertain and interest rates may remain higher for a while, equity investments will become more attractive again.
In this environment, the tax-free pension fund would be a real breakthrough in the government’s otherwise botched pension policy. It is uncertain whether Lindner will get a majority in this coalition for his plan – but one should not give up hope.
Source: Stern
