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Hlocal to science! The federal government often follows this advice when it comes to climate policy and fighting the pandemic. In terms of pension policy, however, the scientists it has recruited are not even taken seriously.
The government ignores the urgent call of economic savants to eliminate the imbalance in pension insurance, which was exacerbated by the crisis in the crown. The Advisory Council even devoted an entire chapter to the subject in its annual report for the assessment of macroeconomic development and called for swift countermeasures. Vain.
The federal government pension report approved by the federal cabinet this week confirms that taxpayers bear the financial burden of the crown, while pensioners do not have to fear any loss of income.
Source: WORLD infographic
With its previous interventions in the pension formula, the grand coalition has ensured that pensions follow the evolution of wages in good times, but disengage from it in times of crisis.
And that has long-term consequences. Because the level of pensions will not only increase in the coming years, as data from the Federal Labor Ministry show, but it is also permanently higher than it would be without the economic recession.
Most retirees should be ready for a zero round next year. Because pensions usually follow the salary evolution of the previous year. And because the federal government also assumes that the median salary will drop primarily as a result of millions of short-time workers, retirement benefits should be cut in 2021 as well.
Expert estimates are four percent lower. However, this cut precludes a “pension guarantee”, which was introduced by the then grand coalition during the 2009 financial crisis to rule out pension cuts.
The “pension guarantee” never allows pensions to be reduced
Since then, the law has stipulated that even with falling wages, pensions will never fall. However, the special regulation of the time provided that failed savings were made in subsequent years through the corresponding pension adjustments.
Federal Labor Minister Hubertus Heil (SPD) suspended this “recovery factor” in the pension formula in the course of the 2018 Pensions Act. That is why wage increases are now fully passed on to retirees, But the pay cuts no longer exist.
The special double rule favors the elderly, the stronger the wage evolution collapses. Given that all forecasts are for a correspondingly significant recovery in 2021 after the sharp drop in labor income this year, the outlook for the 21 million retirees is good. According to preliminary calculations, Deutsche Rentenversicherung expects an increase of around five percent by 2022.
The fact that retirees are saved from the severe cut that employees have to face in the days of Corona not only benefits the elderly in the short term. As the pension report makes clear, the level of pensions, that is, the relationship between pension and wages after 45 years of contributions, remains permanently higher.
Before Corona, the pension level was only slightly above the 48 percent “stop line” introduced by the grand coalition in 2018, now it will rise to 49.8 percent next year and, according to the ministry’s calculations. It will even be 51 percent in 2023.
The pension level will then be significantly higher than in 2015, when the pension level had reached its lowest point to date at 47.7 percent. In fact, GroKo has almost implemented the Left Party’s demand for an increase in the level of pensions to 53 percent with its “stop line”, which was approved by the SPD at the beginning of the legislative period and supposedly only it was intended to prevent a further drop in the level of pensions.
Pensions rose significantly faster than inflation
As good as it is now from the perspective of pensioners to be unrelated to salary developments, in recent boom years it has been equally beneficial to be linked to favorable trends in employee earnings. This is demonstrated by the current pension report, which the government only presents every four years.
In accordance with this, the average gross pensions of people over 65 years of age increased strongly between 2015 and 2019: for men, the increase was 9.6 percent, and for women, due to the introduction and increase of the Maternal pension was 17.5 percent. Overall, there is a 14 percent increase for married couples and single people.
Given that consumer prices rose only 5.3 percent in the same period, the elderly have more money in their pockets in real terms, as the Deutsche Rentenversicherung underlines with reference to “the relatively high pension adjustments during this period” .
And this year, in the midst of the crisis, retirement benefits rose again markedly in July: in the west by 3.45 percent and in the east by 4.2 percent. East German pensions are steadily increasing faster because by law, the east-west alignment should be complete by 2025.
A uniform pension value is then applied throughout Germany. For this reason, pensioners in the new federal states can even expect a slight increase in their pension benefits of 0.7 percent in the next year, while they will remain unchanged in the west.
The Advisory Council, however, advises the Federal Government not to limit itself to continuing with the pension as before. “In the coming years, Germany will experience a strong aging of society, which will put social security systems and especially the mandatory pay-as-you-go pension insurance under increasing pressure,” warn the scientists.
Researchers call for recovery factor to be recovered
And above all, they have two very specific demands on the federal government. “In the short term, the repressed factor that was suspended in 2018 should be restored.” Even then, pensioners would not have to fear any cuts in 2021.
However, the increases in the coming years would be less than what should occur according to the pension report. The burdens of the Crown crisis would no longer fall solely on the youngest.
In order to cushion the consequences of demographic change, economic practices also require that the retirement age be linked to the increase in life expectancy. The legal age limit is currently 65 years and nine months. It will gradually increase to 67 years by 2030.
The Council of Economic Experts’ proposal stipulates that two-thirds of each year gained leads to longer working hours and a third to longer periods of entitlement to pensions. Currently this is around 20 years.
The main economists want to accompany this reform, on the one hand, with stronger incentives to work longer. On the other hand, there should be better protection against inability to work in order not to harm those who have to leave work prematurely for health reasons.
The economy calls for quick action, as the number of retirees will grow faster and faster in the coming years, while the number of taxpayers will decrease at the same time. If countermeasures are not taken now, the major adjustments will have to be made later, “warn the scientists.
Merkel does not want to shake up the pension system
But Chancellor Angela Merkel (CDU) rejected calls for unpopular social reforms last Thursday during a virtual appearance at the Federal Association of German Employers’ Associations (BDA). During her tenure, so many predictions, “when things get out of hand, they haven’t come true,” Merkel said, referring to the pension system.
The sharp increase in employees subject to social security contributions has significantly eased the pressure on the system over the years. You need to ensure that the trend continues after the end of the corona pandemic. “Personally, I don’t think so much about deciding, painfully, any structural change in the pension insurance system for 2050 that turns out wrong three or five years later,” Merkel said.
Source: WORLD infographic
In fact, the number of people working has increased by almost five million since 2010. But a look at the rapid change in the age structure shows that this development cannot be repeated in the 1920s. This also applies at a persistent level. high immigration by migrant workers and a greater increase in the participation of women and the elderly in the labor force.
Therefore, the economic modes point to an entirely different context, which obviously influences the grand coalition’s pension policy more sustainably than any scientific advice. A clear and constantly growing majority of voters are over 50 years old. Only when the baby boomers are all retired could there be a majority in favor of working longer, to pay the highest pension level.
