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Pension needs reform: are Sweden and Norway showing how it's done?

2021-02-26T08:46:35.476Z

The pension system in Germany only works through subsidies. Pension reform seems unavoidable. But what exactly should it look like?



The pension system in Germany only works through subsidies.

Pension reform seems unavoidable.

But what exactly should it look like?

  • A

    reform of

    the

    pension

    * in

    Germany

    is currently being discussed intensively.

  • The

    FDP

    calls for a restructuring of

    old-age provision

    *

    based on the

    Scandinavian model

    .

  • However, there is headwind

    from an

    expert

    and the

    German Pension Insurance

    .

Frankfurt - Half a year before the

general election

, which will take place on September 26th, 2021, the topic of

pensions

suddenly finds its way onto the political

agenda

in

Germany

.

The voices for a major

reform of

the

pension system

are growing louder.

Some critics do not go far enough with

proposals made by

the

Federal Government's

Pension Commission

.

The

"stop line"

agreed

in the

coalition negotiations

between the CDU / CSU and SPD

is not sufficient and does not go beyond proposals, it is said.

Part of this included ideas that

should help

stabilize

pension

contribution rates - but which do not because they have not yet been implemented.

Pension reform in Germany - fund needs billions of tax money as a subsidy

The

“stop line” agreed

by the

grand coalition

stipulates that the

pension level

should not

drop

below

48 percent

.

The

general pension level

is based on the

average income

in Germany.

There are doubts as to whether the projected level can be maintained, especially since baby boomers from 1955 to 1969 will reach retirement age by 2025.

The cash register is exposed to enormous stress.

In addition, there is a

phase of low interest rates

, which makes

private investment

as a

pension plan

an unsafe undertaking.

The "Tagesschau" reports that the

pension fund

in

Germany

has

to be subsidized

every year by billions of euros from

taxpayers' money in

order to withstand the pressure.

This is supposed to be a quarter of the entire federal budget, that is around

100 billion euros

.

Statutory share pension: FDP warns of over-indebtedness

The

FDP

is one of

the loudest critics of the current

pension system

.

The Free Democrats have been emphasizing for some time that this is an obsolete model.

Germany is threatened with over-indebtedness if it comes to further

subsidization of

the

pension system

.

That is why the FDP proposes a “statutory share pension”.

Specifically, the party wants to

invest

around two percent of every statutory pension contribution in

shares

on the

stock exchange

.

In this way, returns from the capital markets could relieve the pension system, it is said again and again.

"We want people in Germany to benefit from growth in the international capital markets," emphasized Christian Dürr, deputy leader of the FDP parliamentary group, in the Bundestag.

Pensioners in Germany

number

total

21,202,082

of which women

12,132,567

of which men

9,069,515

Status: 01.07.2020 - Source: German Pension Insurance

Much cited

examples

are Scandinavian countries,

Sweden

for example.

There, employees are obliged

to invest

2.5 percent of

their

gross income

in pension funds.

Citizens can choose between a state fund and other solutions.

This is reported by the Swedish news agency "Tidningarnas Telegrambyrå".

According to the rating agency "Morningstar", the Swedish sovereign wealth fund is said to be one of the best in Europe, especially since it incurs very low annual fees.

In

the period between 2011 and 2021, the

state fund

achieved an average annual return of more than 14 percent, as reported by the “Tagesschau”.

"With the AP7 fund, Sweden is demonstrating how to use the opportunities of stock savings for old-age provision," said Johannes Vogel, FDP spokesman for pension policy, in the Bundestag.

Such systems

also

exist

in

Norway

.

The

stock market is

washing important

returns

into the pension fund there to protect the population.

There, too, employees have to

invest

around

two percent of

their gross salary - optional, because: The investment is not a must, just an extra income to the regular

state pension

.

The Norwegian sovereign wealth fund benefits in particular from profits from the oil sector.

"The aim of the fund is to invest the money from the oil business in such a way that the state benefits from it in the long term," explains journalist Clemens Bomsdorf. * He has been reporting on the Scandinavian

state fund

for years

.

+

The current debate is dominated by proposals for pension reforms.

(Archive photo)

© Karl-Josef Hildenbrand / dpa

Martin Werding welcomes the proposal of the Free Democrats.

He is professor for social policy and public finances at the Ruhr University in Bochum.

"It is an extremely interesting concept with limited risks that ties in with the phase of honest reforms of the noughties," Werding said at the federal press conference.

A

study by

Werding, which was commissioned by the FDP, shows that a

pension reform based

on the Scandinavian model could even effectively combat Germany's debt into the 2040s, according to the

expert

.

Statutory share pension as reform: "Model cannot be implemented"

The

FDP proposal

does not only meet with approval.

Gisela Färber, professor at the German Research Institute for Public Administration (University of Speyer), criticizes him - and tells the "Berliner Zeitung": "The FDP model cannot be implemented without massive damage to pensions." Pensioners could generate high returns Achieve in this system only in connection with a

high willingness to take risks

, she emphasizes.

The FDP countered that the risk for contributors through long-term investments is very low.

Immediately before starting the respective

pension,

the Scandinavian model provides that the credit should gradually flow into lower-risk investments.

In this way

, it is said

that

short-term price fluctuations

would have

little impact.

Instead, Färber suggests that people

should

work longer in

order to be able to deposit more.

The Federal Government's Pension Commission dealt with this issue very carefully; it is considered a

sensitive issue

in the election campaign.

Färber's criticism also shares the

German pension insurance

.

A statutory share pension would tear a big hole in the pension fund.

The

insurance company

warns that in the long term, the investments would mean a lack of important money

.

Outlook: is a pension reform coming in Germany?

It

remains to be seen

how intensively a possible

pension reform

will be debated

in

Germany

during the

election campaign

.

In any case, the FDP wants to shape the political agenda with the topic.

It is possible that a comprehensive

reform of

the

pension system

- based on the Scandinavian model or not - will be discussed more fundamentally in the coming legislative period than before.

A

pension

issue

that is currently also affecting many senior citizens is the

double taxation

of

old-age provision

. * In this context, an expert accuses the tax offices of “fraudulent deception”.

(Tobias Utz)

* fr.de is part of the nationwide Ippen digital editorial network.

Source: merkur

All news articles on 2021-02-26

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