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Warnings from economists Pension system on the brink of collapse?

Status: 21.06.2021 10:35 a.m.

Too few contributors and high household burdens – experts repeatedly point out the problems of statutory pension insurance. Does that inevitably lead to retirement at 68 or even 70? By Andreas Braun, tagesschau.de The criticism of the German pension insurance system, which has been publicly discussed for weeks, is sharp. The entire structure of the pay-as-you-go pension has been called into question by economists in recent weeks. Many of the criticisms have been known for a long time, but above all caused a stir Paper of the scientific advisory board at the Federal Ministry of Economics , an advisory body within the federal government. Economics Minister Peter Altmaier himself presented the committee’s proposals as “not binding” on his ministry The advisory board is “independent”.

Pension and contribution guarantees aggravate the situation

With their description of the state of the German pension insurance system, the authors of the study are anything but alone among experts. You see “suddenly increasing financing problems” approaching the pension funds. These problems are mainly caused by the guarantee of the pension level introduced in 2018 at 48 percent of the average wage and the limitation of pension contributions to a maximum of 20 percent.

Together with the introduction of the “pension at 63”, this led to the deficit within the pension insurance system being further expanded. More than a quarter of the federal budget had to be diverted to the pension fund in 2019 to fill this gap. In 2040, almost half of the federal funds are threatened to be used for this.

Increasing life expectancy

The conclusion of the economists of the advisory board with its chairman, the Munich economics professor Klaus M. Schmidt, reads: The coupling of the retirement age to life expectancy is “inevitable”. So if Germans tend to live longer and receive longer pensions, the start of retirement will have to be pushed back accordingly. This would correspond to a “pension at 68” in around 20 years.

In addition, the experts are calling for pension increases no longer to be carried out consistently in the future. While existing pensions should only increase with the development of purchasing power, a guarantee of 48 percent, for example, can still be guaranteed for “access pensions”, ie employees who are going into retirement.

Criticism of “unsocial” proposals

While politicians from many parties immediately criticized the committee’s proposals as “anti-social” or unrealistic, the authors also received support from academia from other quarters. The researchers from the employer-related Institute of the German Economy (IW) also see a further extension of the working life as a sensible way to stabilize the German pension system.

IW study director Jochen Pimpertz sees this as an opportunity “to slow down the rise in premiums and at the same time to stabilize the security level”. He recommends raising the retirement age from 2031 by two months for each year of birth. In 2052, the standard retirement age would then be 70 years. The Freiburg economist Bernd Raffelhüschen also sees a dramatic need for reform in the pension system in Germany. The federal government can only choose between “plague and cholera,” he said in a recent interview. Either the contribution rates for the pension fund or the federal subsidy would have to be drastically increased. In the past few years, the federal government gave the “majority of the elderly” too generous gifts, he said.

Swedish stock pension model

Martin Werding, professor at the Ruhr University in Bochum, is calling for a radical move away from today’s pure pay-as-you-go financing. Werding has calculated that a “share pension”, in which employees invest two percent of their gross income in an equity fund, could increase pension payments by up to 30 percent for average earners who have been insured for many years. The consumer advice centers also consider such a provision component, which is based, for example, on the Swedish pension model, to be sensible. Klaus Müller, member of the board of directors of the Federal Association of Consumer Organizations, sees the share investment as an opportunity to get “more money in old age” for insured persons.

But even a fundamental reform of the pension system is unlikely to close the gap between earned income and retirement income for many contributors. The Riester pension, which was introduced around 20 years ago , however, many experts are convinced that it is hardly suitable for this. There are increasing votes for Riester subsidies to expire under a new federal government in autumn. A prominent critic of the Riester model is, for example, the economist and former “economy” Bert Rürup. He advocates pension accounts that could be managed by a foundation and should be accessible to all citizens. Here, too, the idea is that additional contributions are invested primarily in the capital market and converted into payment plans in old age that supplement the statutory pension

FAQ

Statutory old-age provision How the pension is financed

Status: 21.06.2021 10:35 a.m.

It is and should remain the foundation of the old-age provision of millions of Germans: the statutory pension. How does our pension system work and what are the challenges it faces?

From Andreas Braun, tagesschau.de

How is the statutory pension basically organized?

The statutory pension in Germany is organized according to the so-called pay-as-you-go system. Those who pay in do not build up a capital stock that they can fall back on in old age, but rather finance the current earnings of the current pensioners. Anyone who pays into the statutory pension thus acquires a right to such a pension in old age, for which the next generation then has to pay. After a certain waiting period – currently five years – this entitlement is given. In order to receive a pension, you must also have reached a certain age (currently 67 years as a rule).

Who pays into the statutory pension fund?

Employees in Germany are required to pay into the statutory pension. Employers take over half of the payments into the pension fund. The contribution rate is currently 18.6 percent, so 9.3 percent each comes from employees and employers. Self-employed, freelancers or people who are not gainfully employed can also make voluntary contributions. All contributors acquire pension entitlements to which a certain pension amount corresponds. It is determined by so-called “remuneration points”.

How much does the federal government pay into the pension fund from tax revenues?

Since the income from contributors has long been unable to cover the expenses of the pension fund, the federal government co-finances the fund through tax revenue. In 2020, these expenditures exceeded the 100 billion euro mark for the first time. The federal budget provides 106 billion euros for 2021. That is more than a quarter of the federal budget. According to experts the proportion could rise to more than 50 percent of the budget in the coming decades .

What caused the deficit in the pension fund?

The demographic development in Germany is the main reason: The number of people paying into the pension system is facing an increasing number of pensioners. In 2020 there were 57 pensioners for every 100 contributors. In 2050, it is estimated that 100 contributors will make payments for 77 retirees. Since the pension level has always been adjusted upwards in line with the general wage level and there have been no pension cuts, the deficit is growing steadily.

What is meant by the “sustainability factor”?

In order to be able to take into account the ratio of contributors to pension recipients when calculating the pension amount, the “sustainability factor” was introduced in 2005. It should lead to the fact that the pension increases are dampened with an unfavorable ratio of contributors to pensioners. However, only a quarter of the factor is included in the calculation.

What are the “stop lines” set by politicians?

The legislator has provided so-called stop lines, which secure the pension level and at the same time limit the contributions to the pension fund. It is planned that the pension level (with 45 years of contribution) will not fall below 48 percent of current average earnings by 2025. A second stop line relates to the level of contributions from employers and employees. The contribution rate may not exceed 18.6 percent until 2025.

Why is the situation in the pension funds worsening?

The increasingly unfavorable ratio of contributors to pensioners – together with the state guarantees for the amount of pensions and contributions – will further exacerbate the funding gap in the pension insurance scheme in the years to come. The federal government has not yet made any fundamental changes to this system.

What are the options for reforming the pension system?

Proposals for reform target both the revenue and the expenditure side of the statutory pension insurance system. In order to increase the income, either the contribution rates could be increased. In addition, statutory compulsory insurance is also being discussed for additional groups of people such as self-employed or civil servants. On the expenditure side, the pension amount can be reduced on the one hand, and the retirement age can be increased on the other. A link to general life expectancy, for example, is conceivable. The income from the contributions paid in, and thus also the future pension amount, could also be increased by investing more contributions in the capital market.

What should the insured expect in the coming years?

The growing imbalance between income and expenditure in the statutory pension insurance will make reforms necessary in the coming years – economists and politicians of the most important parties see this equally. Contribution rates are likely to rise while average pension levels are lowered and working lives are further extended. In any case, it is likely to become even more important for the insured to make private provision for old age

Head of the Chancellery Braun End of the home office obligation from July

Status: 16.06.2021 5:22 p.m.

In all likelihood, employers will no longer have to offer a home office from July. The corresponding obligation expires. The existing hygiene concepts at the workplace should, however, continue to be adhered to. Chancellery chief Helge Braun has announced an end to the home office obligation. Employers would no longer have to offer a home office from July. “The statutory home office obligation is part of the Infection Protection Act – better known as the ’emergency brake’ – and will expire at the end of June,” said Braun of the “Wirtschaftswoche”.

FAQ 04/22/2021

“Favorable situation”

The “Federal Emergency Brake”, which was only introduced in April provides that the federal government can enforce uniform corona protective measures in areas with incidence values ​​above 100. The Infection Protection Act is limited to June 30th. There had recently been talks within the federal government, in particular about an extension of the home office requirement. Braun has now confirmed, however, that the emergency brake will not be extended at this point in time because the situation is currently “favorable”.

Test offer in companies should remain

According to the Ministry of Labor, rules at the workplace are currently being discussed according to the home office obligation. It is only about “basic requirements” at the workplace such as contact reduction, the obligation to test offers and the obligation to hygiene concepts, according to a spokeswoman. Companies must therefore continue to offer employees in companies a corona test twice a week. This emerges from the draft of the new occupational health and safety ordinance of the Federal Ministry of Labor. “We will extend the amended occupational health and safety ordinance so that the protection of employees is in the foreground even when the incidence is falling,” said Federal Labor Minister Hubertus Heil (SPD). In view of the low corona incidences, however, the obligation to work from home can no longer be justified with occupational safety and is therefore no longer applicable. The SPD politician emphasized that a mixture of presence culture and home office would be “the new normal”. “And for that we need a binding legal framework,” stressed Heil.

06/13/2021

Braun: “New edition of the ’emergency brake’ possibly in autumn”

Chancellery chief Braun said of a possible new edition of the “Federal Emergency Brake” that this would depend on the vaccination rate, the effect of the vaccines and the possible spread of further virus mutations in the autumn. “If the numbers went up again, then you would have to decide quickly.” At the moment there is no reason to extend the “federal emergency brake”.