faq
The pension is secure – this promise from 1986 is no longer valid. The German pension system is getting on in years – a reform is overdue. The traffic light coalition wants to do this on the stock market. That also entails risks.
the initial situation
In the coming weeks, the federal government wants to launch its next major social reform and make pensions in Germany fit for the future. The stock market is also to play a central role in securing pensions for the first time. Although there are private provision options and company pension schemes, for most people the statutory pension is the main source of income in old age. With the share pension, you should get a new building block. That also entails risks.
Why should the pension system be changed?
The age structure in Germany is changing – there are more and more old people and fewer and fewer young people. This also means that there are more and more pensioners and fewer and fewer contributors. The state already subsidizes the statutory pension fund with a good 100 billion euros a year and the trend is rising. The traffic light coalition does not want to cut pensions and does not want to increase the retirement age any further. Chancellor Olaf Scholz has just spoken out against a further increase in working life.
According to the current legal situation, the age limit will be gradually raised from 65 to 67 years without pension deductions. For those born in 1964 or later, the standard retirement age of 67 definitely applies. Those born before 1953 could retire at 63 with no deductions. According to the German pension insurance, people in Germany retire on average at the age of 64.4. According to a study, 70 percent of so-called baby boomers, i.e. people born in the 1950s and 1960s, want to stop working prematurely.
The coalition does not want to change the retirement age, but at the same time the contributions should not increase too much. The share pension agreed in the coalition agreement is intended to help achieve all of these goals. Whether this works is an open question.
What does the traffic light want to achieve with another reform?
The reform adopted in 2018 on the main lines of pensions will only last until 2025. Until then, the pension level should not fall below 48 percent from today’s 48.1 percent and the contribution rate should not rise above 20 percent. Today it is 18.6 percent of gross income. But what happens then? If no countermeasures are taken, the level of pension security threatens to fall to 46.6 percent by 2030, according to official forecasts. The contribution rate is expected to rise to 21.3 percent by 2036. Because millions of baby boomers are retiring and going from paying into pensioners.
What is the pension level?
The pension level indicates the relationship between the amount of the pension and the salary. It states what percentage of the current average wage someone receives as a pension who has always worked at the average wage and paid contributions for exactly 45 years. When pension levels fall, pensions rise less than wages.
What is the government planning?
Labor Minister Hubertus Heil (SPD) and Finance Minister Christian Lindner (FDP) want to present their pension plans soon. The two central points: According to the Ministry of Labour, the pension level should be permanently secured at 48 percent. And with the creation of a so-called generational capital, the contribution rate should be stabilized in the long term – this is where the shares come into play. “The statutory pension will then be financed from three sources in the future,” announced Heil. So from the pension contributions, the tax subsidy and – new – from income from the capital market.
Become a pensioner automatically stockholders?
No – and no pension contributions should flow into equity funds. Because the “generational capital” is a long way from the original FDP plan for a share pension. During the election campaign, the FDP campaigned for two percent of income to be put into a funded pension plan. Instead, the government initially wants to invest ten billion euros from public loans on the capital market. The sum is expected to increase by three percent annually to 200 billion euros. The individual pensions are not to be improved either – but the pension contributions are to be stabilized in around a decade and a half.
Like that “Generation Capital” be created?
As safe as possible. “The security results from the breadth and the long-term nature of the systems,” said Lindner in an interview. A globally diversified and long-term capital investment is planned. The returns go to the statutory pension insurance. If share prices fall and the investments yield less returns, this should be compensated by the federal government.
The facility is to be managed by a sovereign wealth fund in the form of a politically independent foundation. Finance Minister Lindner would like to transfer this to Kenfo – this foundation manages the fund for financing the interim and final storage of nuclear waste. This emerges from the draft law that Lindner sent to his cabinet colleagues last week. According to “Spiegel” information, Economics Minister Robert Habeck (Greens) lodged an objection to Lindner’s concept. The kenfo is subordinate to his ministry, so he claims a say.
What questions are open?
Among other things, it is unclear which specific requirements should apply to the investment strategy of the fund. Lindner refers here to the specifications that apply to the kenfo. Accordingly, ecological and social criteria must be taken into account, among other things. It is also controversial whether part of the regular pension contributions could be put into the fund in the future. In his own words, Lindner can imagine that the contributors “participate individually” in the fund.
What criticism is there of the plans?
Social organizations speak of “risky experiments” and “speculation on the stock market”. The SPD, the Greens and the Left Party, as well as the trade unions, are also skeptical about the project, which is mainly being pushed by the FDP. It is feared that even with a comfortable financial endowment of the fund, the effect on the stabilization of the pension system will be small – especially since the income would first of all have to cover the interest on the loans necessary for the payments.
Critics also point out that in 2022, kenfo made billions in losses instead of profits. The Greens in particular have repeatedly said that Lindner’s plan harbors high risks. According to the Green pension expert Markus Kurth, the plans could also violate the debt brake and EU state aid law. The debates in the coalition should therefore not break off for the time being.
Are there alternative suggestions?
Instead, the Left Party, but also the Greens and SPD, are demanding that all workers should pay into the statutory pension, including the self-employed and civil servants. There is such a model in Austria, for example, where the statutory pension benefits are significantly higher than in Germany.
In view of the increase in poverty in old age in Germany, the Left Party is also demanding a one-time pension increase of ten percent to compensate for inflation. In addition, the pension level should be raised to 53 percent and a minimum pension of 1,200 euros should be introduced. How this is to be financed remains open.
Should we also be able to make private provisions for old age in the future?
Yes. A government commission has already submitted proposals for new ways of providing for old age, both privately and with government funding. After a reform of private old-age provision, forms of provision with lower guarantees and higher potential returns than today’s Riester pension could also be offered – including investments in exchange-traded index funds (ETFs). According to the proposals, the Riester pension is to expire, and existing contracts are to be grandfathered. The SPD parliamentary group had already welcomed the proposals.