2024-03-14 15:20:15
Millions of baby boomers are retiring – but the government promises that pensions will not be cut. Investments worth billions on the stock market should also help.
The federal government wants to stabilize pension levels and slow down the expected increase in pension contributions. Labor Minister Hubertus Heil (SPD) and Finance Minister Christian Lindner (FDP) presented a reform package on Tuesday that is intended to guarantee the pension level of 48 percent for the future.
Because this costs large additional billions, but pension contributions should not increase too much, the financing should be placed on an additional footing. By establishing a capital stock worth billions on the stock market, the traffic light government wants to open up a new source of financing for pension insurance.
Chancellor Olaf Scholz ruled out cuts to pensions. “For me, pension cuts are out of the question,” said the SPD politician in a video message. Scholz criticized proposals to raise the retirement age to 70 and calls for pension zero rounds. Heil promised: “There will be no reduction in pensions and no further increase in the retirement age.” The reform package should be passed by the Bundestag before the parliamentary summer break in July.
Pension package part 1: Guaranteed pension level
Everyone should be able to rely on the statutory pension, emphasized Heil. Without the reform, pension levels would soon become decoupled from wage developments. Pensioners would become poorer compared to the working population. The pension protection level – currently around 48.2 percent – is only fixed until 2025. According to official estimates, the pension level is expected to fall to 45 percent by 2037. The reason: millions of baby boomers born in the 1950s and 1960s are becoming retirees.
The pension level indicates what percentage of the current average wage someone who has always worked at the average wage for exactly 45 years receives as a pension. When pension levels fall, pensions rise more slowly than wages. A 48 percent level is now to be secured initially until 2040. In 2035, the government in office should present a report on how it can be maintained from 2040.
Heil’s officials calculated: If, for example, a trained nurse with 3,100 euros per month retires in 2032 at the age of 65 after 45 years of work, thanks to the pension package, her salary would be around 1,500 euros instead of around 1,450 euros. “That’s an increase of around 600 euros per year.”
Pension package part 2: New source of financing on the stock market
In order to avoid jumps in contributions in the future, the federal government wants to invest billions in the capital market and use the income to pay subsidies to the pension insurance from the mid-2030s. This gives the pension insurance a third source of financing in addition to contributions and subsidies from the federal budget.
The government wants to take on debt for the money invested on the capital market, which will not be counted towards the debt brake. This year that’s initially 12 billion euros, but it’s expected to be a little more in the coming years. Federal assets will also be transferred. In total, at least 200 billion euros should be invested by the mid-2030s. Ten billion euros will then flow annually from the earnings on the stock market to the statutory pension insurance.
“This is not yet the sole solution to the challenge of long-term pension financing,” emphasized Lindner. But it is a building block that makes a difference. “For over a century, the opportunities of the capital market in statutory pension insurance have been left behind,” he criticized. “Now we use them.” Heil and Lindner emphasized that it was not about gambling and short-term speculation. “This is money well spent in the long term,” said the Labor Minister. “And we have also taken precautions in case the sky falls on our heads.” There is an emergency mechanism. Lindner emphasized that no citizen will lose anything.
What it costs – and what it means for the pension contribution
According to the draft law, pension spending would rise from the current 372 billion euros to 755 billion euros by 2045 without reform – with the planned fixing of the pension level at 48 percent, they could even rise to around 800 billion.
Because of this and because of the aging population, significantly higher contributions would be expected. Without investing money on the capital market, the pension contribution would rise from the current 18.6 percent to 22.7 percent by 2045. This should dampen the returns from the capital market somewhat. The federal government expects a pension contribution of 22.3 percent in 2045.