Federal Minister of Labor
Pensions will rise by 4.57 percent on July 1st
Pensions will rise from July (archive image). photo
© Sebastian Kahnert/dpa-Zentralbild/dpa
A big plus for millions of pensioners in Germany: their salaries will rise more significantly than expected in the summer. But the difficult times for the pension fund are already becoming apparent.
According to the Ministry of Social Affairs, the pension adjustment is based on the latest data from the Federal Statistical Office and the pension insurance. The increase is greater than forecast. In the fall, estimators had assumed a nationwide pension increase of around 3.5 percent in July. Heil spoke of “good news” for pensioners.
Heil pointed out that the pension adjustment was “significantly” above the inflation rate. Last year the pension increase was lagging behind. Inflation weakened further in February. Consumer prices were still 2.5 percent higher than in the same month last year. In the past, pensions have, on average, risen more than consumer prices, emphasized the President of the German Pension Insurance, Gundula Roßbach.
“A milestone for our country”
In 2024, the pension adjustment will be above four percent for the third year in a row. For the first time it will be the same nationwide. Heil emphasized: “34 years after German unity, this is a milestone for our country.” In 2023, retirement benefits increased differently in the old and new states – by 4.39 percent in the west and 5.86 percent in the east. With this pension adjustment, the pensions had already equalized last year – earlier than planned. The reason was that wages in the East had previously risen significantly more than in the West. Heil: “Work is worth the same in East and West when it comes to pensions.”
Lower increases expected
Pensions are likely to continue to rise in the future – but according to the current pension insurance report, not to the extent of this year. The report assumes an average increase rate of 2.6 percent per year until 2037 – a total of a good 43 percent. At the same time, pressure on pension funds is increasing as millions of so-called baby boomers retire. According to the report, the pension level is likely to fall from the current 48.2 percent to 45.0 percent in 2037 without legal intervention. This means that pensions are generally no longer rising as quickly as wages.
Rising pension spending expected
Heil therefore referred to the coalition’s plans. The government is stabilizing pensions and using generation capital to relieve the burden on future contributors. “Stable pensions are not a luxury, but have been the basis of our social market economy for decades and a guarantee of stability and social peace,” said Heil. With their reform, Heil and Finance Minister Christian Lindner (FDP) want to guarantee the pension level of 48 percent for the future. DGB board member Anja Piel called for the bill to be passed quickly: “A pension level of 48 percent will bring higher pensions for current and future generations.”
The government also wants to invest at least 200 billion euros from federal funds in the capital market by the mid-2030s. Premium increases should be dampened from the income. Nevertheless, according to the draft law, politics and society are faced with significantly increasing pension expenditure. Without reform, these expenses would increase from the current 372 to 755 billion euros by 2045 – due to the 48 percent pension level, this should rise to 800 billion euros. Without investing money on the capital market, the pension contribution would rise from 18.6 percent to 22.7 percent by 2045. With generation capital it should then be 22.3 percent.
Demographics have a dampening effect
According to the ministry, the wage increase that is relevant for the upcoming pension adjustment is 4.72 percent. It is based on the salary development and the further salary development of the insured persons subject to contributions. The ratio of pension recipients to contributors is also taken into account. This happens through the so-called sustainability factor – it already has a slight dampening effect on pension adjustments due to demographics.
The Left pension expert Matthias W. Birkwald called for this sustainability factor, which applies at the request of the FDP, to be deleted from the pension formula. According to Birkwald and the ministry, the holding line for the pension level must be activated this year because of the dampening of pensions caused by this factor. The law stipulates that the level must not fall below 48 percent by 2025. It describes the development of pensions in relation to wages. Now the minimum level is just undershot, according to Heil’s officials. “Therefore, the level protection clause applies and the current pension value is set so that a pension level of 48 percent is achieved.”
Pension value increases significantly
This results in an increase in the current pension value from 37.60 to 39.32 euros, explained the ministry. This is how the pension adjustment comes about. The pension value indicates how much a so-called earnings point or pension point is worth. Insured people collect earnings points over the years: Anyone who earns as much as the average in the country in a year receives one point. The number of points multiplied by the pension value plus other factors then results in the pension. For a standard pension with average earnings and 45 years of contributions, the pension adjustment now means an increase of 77.40 euros, the ministry calculates.
The chairwoman of the alliance, Sahra Wagenknecht, referred to the loss of purchasing power in recent years. Despite its size, the pension increase is a disappointment for pensioners, “because food and energy have become extremely expensive in recent years,” said Wagenknecht of the German Press Agency. The Green pension expert Markus Kurth pointed out that a permanently stable pension level is only possible “if the working population potential is fully exploited”.