The pension fund is coming under increasing pressure. The government wants to counteract this with investments in the stock market. What is planned? And why are there great doubts about the plans?
Berlin – 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. But even from within the coalition, the plans are already being heavily attacked. What should you know about the stock plans?
What does the traffic light want to achieve with another pension 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 who were born in their 50s and 60s are retiring and going from paying into pensioners.
What is actually 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.
Do pensioners automatically become shareholders?
No, no pension contributions should flow into equity funds either. 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 10 billion euros from public loans on the capital market. The individual pensions are not to be improved either – but the pension contributions are to be stabilized in around a decade and a half.
How should generational capital be invested?
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 facility is to be managed by a sovereign wealth fund in the form of a politically independent foundation. If share prices fall and the investments yield less returns, this should be compensated by the federal government.
What do critics think of investing in stocks for retirement?
“The financial markets are very volatile,” says DGB boss Yasmin Fahimi. “You can’t build an intergenerational contract on that.” Social organizations have already warned against “risky experiments” and “speculation on the stock market”. The Green pension expert Markus Kurth refers to the already existing state fund for financing nuclear waste disposal (Kenfo) for the disposal of nuclear waste. The kenfo recorded a loss of 12.2 percent in 2022. The fund volume fell from initially 24 to 21.7 billion euros. Kurth: “If the share pension would achieve similarly low returns, it would be better not to take out the loan in the first place.” The Green MP also thinks that the plans probably violate the EU’s debt brake and state aid law. The debates in the coalition should therefore not break off for the time being.
How big should the generational capital be?
That remains to be seen. Lindner wants 10 billion euros to be invested in the system every year in the future. But whether that will happen is an open question. In any case, a future increase in contributions to pensions is unlikely to be fully offset. DGB boss Fahimi says: “But I don’t have much hope that this will really make a contribution to stabilizing old-age income.”
Does it also cost money if the pension level is supported?
A lot even. According to a rule of thumb, an increase in the pension level by one percentage point corresponds to the financial volume of almost half a contribution rate point. Half a contribution rate point corresponds to about 8 billion euros. For Fahimi, the planned stabilization of the pension level at 48 percent is even “the minimum”. “We would like more.”
What concerns do employers have?
The concern that even more contribution and tax money will be pumped into the pension in the future. “More than 100 billion euros from the federal budget flow into the financing of pensions every year,” states Employer President Rainer Dulger. “If the baby boomers move up, it will be even more expensive.” But fewer taxes and levies are needed. “There should be a social security brake installed.”
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. dpa
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