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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

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Corona consequences for companies How much longer does the state have to help?

Status: 06/17/2021 10:18 a.m.

Today, the federal and state economics ministers are discussing how to proceed with corona aid for companies. Warnings against a permanent state economy are getting louder. But some industries are still deeply in crisis.

From Axel John, SWR

Tim Sandrock walks through the 3500 square meter hall of his event company. He points to huge loudspeakers, lighting systems or projectors that are piled up to the ceiling. “That would normally all be used outside in mid-June, at theater events, village festivals or music concerts”says Sandrock. “The camp could be swept through completely. We haven’t moved the technology for at least 15 months.”

He is one of the two managing directors of Flo-Service GmbH in Mainz. The company has 25 employees and six trainees. The company organizes up to 1500 events per year with a focus on the Rhine-Main area. “From the disco ball for the teenage party to the stage technology for a Sting concert, we cover everything”says Sandrock. Although the economy is taking off again across the country, Flo-Service still has few orders at major events due to the pandemic requirements. Most recently, among other things, the Oktoberfest was canceled. This sends a devastating signal to the industry.

Hope for further help

“We are broadly positioned and have thus been able to limit losses. The Federal Employment Agency helped us a lot through short-time work with around 31,000 euros per month. The bridging aids were also extremely important to us last year”says Sandrock. “However, our company has fixed costs of 150,000 euros every month.”

“I very much hope for further government aid” – Flo Service Managing Director Tim Sandrock. Image: Axel John, SWR

Flo-Service mainly draws on its operating reserves before Corona. In addition, there was a tough austerity course. Overall, sales have decreased by a good third. This means that Sandrock is still in a brilliant position in the industry. Other companies make a minus of 90 percent or are no longer there. “In the long run, of course, you can’t finance a company like ours. I therefore very much hope for further state aid”, he says. Cultural events have a pre-planning of three to nine months. In the uncertain Corona time, that’s half an eternity. “I am optimistic that the worst is behind us. But we still need support for a transition period. Otherwise all previous payments would be pointless”, says Sandrock.

Economics ministers discuss further aid

The federal and state economics ministers meet today in Düsseldorf – for the first time in attendance. One question is: what will happen next with the support for the economy? The bridging allowance and short-time work allowance were only recently extended to the end of September and even expanded. Now it is about a renewed extension until the end of the year.

The host of the meeting, the North Rhine-Westphalian Minister of Economic Affairs Andreas Pinkwart from the FDP, has already made a decision: “I am in favor of the aid being extended beyond the end of September until the end of the year”, he says. “Sectors such as the trade fair and event industry or the showmen will continue to suffer from a drop in sales in the fall. The Federal Ministry of Economics also sees it that way. I would also like to advocate this course at the federal government.”

NRW Minister of Economic Affairs Pinkwart is campaigning for a further extension of the corona aid. Image: dpa

North Rhine-Westphalia’s Minister of Economic Affairs also refers to legal constraints. “Unfortunately, to fight the pandemic, we had to restrict the freedom of trade. That is why the bridging aid is not subsidy, but compensation. Parts of the economy are only now gradually returning to normal”says Pinkwart. Now it is a matter of creating transitions for the companies concerned.

Share of businesses in need is falling

More and more companies seem to manage this transition. According to a study by the Institute for Employment Research (IAB), only eight percent of all companies saw their existence threatened by May. In April this value was still 13 percent. “The incidence values ​​are easing in many places, and at the same time private-sector companies in Germany are looking more optimistically into the future, “says IAB Director Bernd Fitzenberger. So far, the Federal Ministry of Economics has approved a total of more than 105 billion euros for the economy during the crisis. In addition, there is short-time work allowance of around 32.3 billion euros.

Criticism from economists

More and more economists are critical of the ongoing political assistance. Lars Feld is one of them. The 54-year-old economist is a proven regulatory politician, i.e. oriented towards the principles of market and competition. “The extension until the end of September is fine. But I do not believe in a renewed extension”, he says. “The upswing is in full swing. According to the Bundesbank, we will have growth of 3.7 percent in Germany this year. Next year it should be five percent. The need for an expansive fiscal policy that continues to be so strong is therefore decreasing.”

In addition, there are always deadweight effects at companies that find themselves in a difficult situation without this having anything to do with Corona. However, Feld limits his analysis with a view to the event industry. “If the state restricts certain companies in certain sectors of the constitutionally granted freedom of trade, then this must be compensated. But we will have to live with Corona in the long term. Therefore, I think it is questionable whether the events industry can continue as it did before the pandemic.”

Digital structural change also in the event area

Tim Sandrock in Mainz knows that too. In order to survive economically, Flo-Service had already digitized itself during the lockdown. “We have brought our analog offers into the digital space. Instead of a meeting with a projector, screen or interpreting service, we now also offer complete software solutions”says Sandrock. Corona has massively accelerated development. “There will be a growing digital share at events of all kinds in the future.”

In order not to complicate this structural change, Sandrock is also in favor of a foreseeable phase out of the aid. For the next few months, however, the company needs government aid again. If politicians decide in favor of renewed extension, Sandrock will submit an application. “But I am sure that the industry will recover quickly after Corona. I’m also counting on a catch-up effect. Man is a sociable being. That’s why we’ll be back.”

US President Joe Biden. Photo: AP “He’s smart, he’s tough, and I see him as a worthy opponent,” Biden said. At the same time, President Biden said that the upcoming meeting with President Putin is important and he will ask Moscow to cooperate in areas of mutual interest if the Kremlin chooses to do the same, according to Reuters. “I want to make it clear to President Putin that there are areas where we can cooperate if he chooses to go this way. If he chooses not to cooperate and act the way he has in the past with regard to cybersecurity and certain other activities, we will respond in the same way,” Biden said. However, President Biden also said that he would make it clear to Putin where the “red lines” are. “I have shared with our allies what will convey to Putin, that I do not seek conflict with Russia but we will respond if Russia continues its harmful activities and we will not. failed to defend the transatlantic alliance. We stand for democratic values,” Biden said. In addition, the White House president also noted that “it would be a disaster” if Russian opposition figure Alexei Navalny died in prison. Specifically, according to the US leader, “Mr Navalny’s death will be another sign that Russia has little or no intention to adhere to basic human rights. It was a disaster. That does nothing but hurt Russia’s relationship with the rest of the world.” It is known that the meeting between President Biden and his counterpart Putin is scheduled to take place in Ho Chi Minh City. Geneva (Switzerland) on June 16. Both Washington and Moscow welcomed the upcoming summit as a positive step towards finding stability in the bilateral relationship.