Reform: Pension package on the way

Reform: Pension package on the way

Decision after a long dispute: Chancellor Scholz and the ministers clear the way for the traffic light coalition’s pension package. The focus is already on the next reforms.

After months of wrangling, the Federal Cabinet has launched the second pension package of the traffic light coalition. The ministerial round cleared the way for the plans of Labor Minister Hubertus Heil (SPD) and Finance Minister Christian Lindner (FDP). This will ensure that pensions in Germany continue to rise in line with wages in the future.

The pension level is to be fixed at 48 percent. In addition, generational capital from federal funds is to be invested in the stock market. The interest income from this is to be used to slow down the future increase in contributions.

Heil said: “In this way, we are investing in the welfare state and in the social security of tomorrow.” At a separate appearance, Lindner spoke of a “turning point” in pension policy: “With the second pension package, we are now starting to let the international capital markets work for our retirement provision.” For generational capital, the government wants to invest at least 200 billion euros, mostly from federal debt, in the stock market by the mid-2030s.

Pensions should remain linked to wages

In view of the aging of society, Heil placed the protection of the pension level at the centre of attention: “The pension level would gradually decrease after 2025, thereby decouplering the development of pensions from wage developments, and this to a noticeable extent.” The reason for this is that as the baby boomer generation passes, there are more and more pensioners and fewer people paying into the pension system.

Heil gave a practical example. “A nurse in Saxony who is 49 years old today and who will probably be able to retire without any deductions in 2040 at the age of 65 would have 1,100 euros less available per year if we cannot secure the pension level.”

Union: Coalition fuels spending dynamics

The high cost of the pension plans sparked fierce criticism. According to the draft law, pension spending will rise from 372 to 802 billion euros with the reform by 2045. Union labor market expert Stephan Stracke (CSU) said: “With the second pension package, the federal government is terminating the intergenerational contract in pensions.” In addition to the massive increases in contribution rates as a result of demographic change, the federal government is introducing billions in additional costs for employees and companies. “In doing so, it is further fueling the unbroken spending dynamic in social security contributions.”

Heil responded to such warnings by saying that the income base for the statutory pension is secured primarily in the labor market. “We must and will do our homework in the labor market,” Heil said. Qualification and skilled immigration ensure the security of jobs and skilled workers.

Trade unions demand higher pension levels

Social associations and trade unions welcomed the continuation of the 48 percent limit on pension levels – and demanded more. Verdi boss Frank Werneke said: “In the medium term (…) an increase to more than 50 percent is necessary in order to permanently curb old-age poverty.”

The coalition had previously wrangled over the plans for months. The finance ministry recently blocked the draft bill in a dispute over the federal budget. With the cabinet decision, it is now the Bundestag’s turn. The Federal Chancellery had previously asked the states to shorten the deadline so that the Bundesrat could discuss the reform at its meeting on July 5.

Longer working hours should become more attractive

Heil announced further reform steps before the federal election in autumn 2025. The labour minister included reforms to private and company pension schemes. In addition, the government will present a third pension package to provide better retirement security for the self-employed.

Further incentives for voluntary longer working hours could also be introduced soon. Heil referred to a current discussion process with business and unions. “It’s about people who want to and can work longer hours voluntarily.” There will be proposals for this in the summer.

Lindner wants further pension packages

Heil had already answered the question about further reform steps in the negative the day before. Lindner and the FDP had already called for a third pension package, but among other things to do more for the share capital. Lindner also believes that further steps are necessary to counter the predicted increase in contributions. “And that is why today’s pension package II is the forerunner of pension package III and pension package IV, pension package V, or at least of further efforts to limit contributions for citizens in the 1930s,” said Lindner.

The FDP leader demanded that the activists should not be overburdened. However, the possibilities for further pension reforms in the traffic light coalition are limited. “I also believe that we have already discussed a great deal of what (…) is achievable in this constellation.” He assumes “that the next federal election will also vote on pensions.”

Source: Stern

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