Millions of baby boomers are retiring – but the government promises that pensions will not be cut. Investments worth billions on the stock market should also help.
The federal government wants to stabilize pension levels and slow down the expected increase in pension contributions. Labor Minister Hubertus Heil (SPD) and Finance Minister Christian Lindner (FDP) presented a reform package on Tuesday that is intended to guarantee the pension level of 48 percent for the future.
Because this costs large additional billions, but pension contributions should not increase too much, the financing should be placed on an additional footing. By establishing a capital stock worth billions on the stock market, the traffic light government wants to open up a new source of financing for pension insurance.
Chancellor Olaf Scholz ruled out cuts to pensions. “For me, pension cuts are out of the question,” said the SPD politician in a video message. Scholz criticized proposals to raise the retirement age to 70 and calls for pension zero rounds. Heil promised: “There will be no reduction in pensions and no further increase in the retirement age.” The reform package should be passed by the Bundestag before the parliamentary summer break in July.
Pension package part 1: Guaranteed pension level
Everyone should be able to rely on the statutory pension, emphasized Heil. Without the reform, pension levels would soon become decoupled from wage developments. Pensioners would become poorer compared to the working population. The pension protection level – currently around 48.2 percent – is only fixed until 2025. According to official estimates, the pension level is expected to fall to 45 percent by 2037. The reason: millions of baby boomers born in the 1950s and 1960s are becoming retirees.
The pension level indicates what percentage of the current average wage someone who has always worked at the average wage for exactly 45 years receives as a pension. When pension levels fall, pensions rise more slowly than wages. A 48 percent level is now to be secured initially until 2040. In 2035, the government in office should present a report on how it can be maintained from 2040.
Heil’s officials calculated: If, for example, a trained nurse with 3,100 euros per month retires in 2032 at the age of 65 after 45 years of work, thanks to the pension package, her salary would be around 1,500 euros instead of around 1,450 euros. “That’s an increase of around 600 euros per year.”
Pension package part 2: New source of financing on the stock market
In order to avoid jumps in contributions in the future, the federal government wants to invest billions in the capital market and use the income to pay subsidies to the pension insurance system from the mid-2030s. This gives the pension insurance a third source of financing in addition to contributions and subsidies from the federal budget.
The government wants to take on debt for the money invested on the capital market, which will not be counted towards the debt brake. This year that’s initially 12 billion euros, but it’s expected to be a little more in the coming years. Federal assets will also be transferred. In total, at least 200 billion euros should be invested by the mid-2030s. Ten billion euros will then flow annually from the earnings on the stock market to the statutory pension insurance.
“This is not yet the sole solution to the challenge of long-term pension financing,” emphasized Lindner. But it is a building block that makes a difference. “For over a century, the opportunities of the capital market in statutory pension insurance have been left behind,” he criticized. “Now we use them.” Heil and Lindner emphasized that it was not about gambling and short-term speculation. “This is money well spent in the long term,” said the Labor Minister. “And we have also taken precautions in case the sky falls on our heads.” There is an emergency mechanism. Lindner emphasized that no citizen will lose anything.
What it costs – and what it means for the pension contribution
According to the draft law, pension spending would rise from the current 372 billion euros to 755 billion euros by 2045 without reform – with the planned fixing of the pension level at 48 percent, they could even rise to around 800 billion.
Because of this and because of the aging population, significantly higher contributions would be expected. Without investing money on the capital market, the pension contribution would rise from the current 18.6 percent to 22.7 percent by 2045. This should dampen the returns from the capital market somewhat. The federal government expects a pension contribution of 22.3 percent in 2045.
Praise and criticism
The green coalition partner, who has so far rejected generational capital, reported that there was still a need for clarification. “In particular, the project must be legally secure and compatible with EU state aid law,” said the Green social politicians Frank Bsirske and Markus Kurth. The Greens want to legally stipulate that the use of contribution funds for the capital stock will actually be excluded in the future.
Social associations welcomed the stabilization of pension levels. But it is necessary to protect everyone with a pension level of 53 percent, said VdK President Verena Bentele. The chairwoman of the German Social Association, Michaela Engelmeier, also said that “a pension level of 48 percent is far from enough.” The Left pension expert Matthias W. Birkwald called for an immediate, one-time and extraordinary pension increase of ten percent.
DGB boss Yasmin Fahimi also describes securing pension levels as an “important signal” – but an increase is necessary. Regarding generational capital, the DGB boss said: “The only thing that is certain here is the risk.” IG Metall called generational capital “a credit-financed bet on unclear returns in the future.”
The head of the ifo economic research institute, Clemens Fuest, criticized: “If politicians promise services, it should also be clarified how these services will be financed.” What is needed is a longer working life, based on the increase in life expectancy, Fuest told the “Rheinische Post”. The Association of Mechanical and Plant Manufacturers VDMA criticized the fact that contributions rising by more than 20 percent in the medium and long term was unacceptable.
Is this the end of the issue of financing pensions?
No, at least not for all coalition partners. “I can imagine more, we can imagine,” said Lindner for his FDP. The liberals point out that the system could theoretically be expanded – for example so that people could also individually pay their contributions into the capital stock. “Such a solution could not be implemented within the coalition, but it could be implemented in a next step,” says the Ministry of Finance. However, Lindner emphasized that he did not want to make any additional demands now that would only come into effect in the next election period.
Source: Stern
I have been working in the news industry for over 6 years, first as a reporter and now as an editor. I have covered politics extensively, and my work has appeared in major newspapers and online news outlets around the world. In addition to my writing, I also contribute regularly to 24 Hours World.
