Status: 09/24/2021 4:12 p.m.
The holes in the pension fund are getting bigger and bigger. However, many experts consider the announcements made by the parties to be unconvincing. You insist on quick decisions.
A look at the statistics puts you in a good mood at first: Germans are living longer and longer. According to the Federal Statistical Office, life expectancy for men is currently 78.6 years, women live to be 83.4 years on average, and the trend is rising. For the year 2060, the authority expects another plus of three to 7.6 years, depending on the scenario.
What makes citizens happy, on the other hand, causes problems for the pension system. The holes in the pension fund are getting bigger and bigger. “In the next 15 years the baby boomers will retire, and as a result the relationship between contributors and pension recipients will shift dramatically,” says Martin Werding, social economist at the University of Bochum. The baby boomers are the baby boomers between 1960 and 1970. At that time there were 3.8 contributors for every pensioner. The ratio is currently 1: 9. And according to the forecast of the Federal Ministry of Labor, there will be only 1.5 female contributors for every pensioner in 2034.
Plans for More Contributors
The demographics aggravate the situation for the pension fund. The parties have long recognized the problem, but their concepts are incomplete from the perspective of pension expert Werding. Example: the number of contributors. All parties represented in the Bundestag – with the exception of the FDP – want to oblige more people to pay into the state pension scheme. These include, for example, the self-employed, civil servants, politicians or more immigrants. “That is a bit far, but only a time shift of the problems,” says Werding. Although this creates more contributors in the medium term, it naturally also creates higher pension entitlements later on. “You can’t bridge or tunnel under any situation with it, because the demographics won’t get any better after 2035 either.”
Time is of the essence because the pension insurance reserves – currently 34.2 billion euros – will be significantly reduced in the next few years. This is due, among other things, to the so-called “double stop line”: The federal government had decided not to let the pension level fall below 48 percent up to and including 2025 and not to let the pension contribution rise above 20 percent. And no party is campaigning for a higher retirement age, the third major adjustment screw in the pay-as-you-go system.
Link retirement age to age?
You have to turn the big screws. “Otherwise, spending will increase significantly more than revenue over the long term,” the Bundesbank stated in an analysis in 2019. She proposes a link between retirement age and age – just as the EU Commission, the industrialized countries organization OECD and the International Monetary Fund (IMFI) have advocated. And as Axel Börsch-Supan, Director of the Munich Center for the Economics, also has in mind of Aging and member of the previous Federal Government’s Pension Commission.
“So you don’t have to set a fixed retirement age, no pension at 67 or 68, but rather say that if we live longer, then you have to work so much longer so that the ratio stays the same,” says Börsch-Supan. You have to react flexibly to demographic developments. After all, as is currently the case in the USA, life expectancy could fall again.
Subsidies are a burden on the federal budget
In the past, however, the federal government has increasingly filled holes in the pension fund with tax subsidies. According to the federal financial planning, the grant will amount to 106.4 billion euros this year. According to their election platform, the AfD and the Greens can imagine even higher tax subsidies in the future. For Börsch-Supan this is absurd: “You cannot rely on the tax bag, this is cheap election campaign propaganda that we are hearing at the moment.”
If the federal budget were to continue to be burdened with pension insurance, then there would be no money for education, infrastructure or even climate change. “That’s why you have to be careful not to say that this is a cow that you can milk as you like. No, you can’t,” said Börsch-Supan. Decisions like retirement at 63 would have placed an additional burden on the system.
Funded pension based on the Scandinavian model?
The major parties, with the exception of the Left and AfD, agree on one point: In future, the pension should be more funded, for example in the form of a state fund. The state would then invest a small part of the pension in securities and other assets and manage it itself. The Greens call their model a “citizens’ fund”, the CDU speaks of a “generational pension”, the FDP of a “share pension” and the SPD refers to an offer from a public institution “based on the Swedish model”.
Sweden has had good experiences with such a state pension fund in the past. Long-term returns were stable despite fluctuations in the equity markets. Is such a model also suitable for Germany? After all, many experts also think this is a good idea. “That is basically the method of choice,” says Werding expert: not as a replacement, but as a supplement to the previous pension system.