Cabinet decides on pension increase: criticism from social organizations – inflation eats up increase

Created: 04/14/2022, 05:14

By: Patricia Huber

The federal cabinet has decided on a whopping increase in pensions - but there shouldn't be much left of it.

(Iconic image) © Dirk Sattler/Imago Images

There hasn't been a pension increase like this for decades - but the significant plus that the federal government has decided is being eaten up by inflation, criticize associations.

Berlin - The federal cabinet launched the biggest pension increase in decades on Wednesday.

In the west, after a zero round last year, retirement benefits will increase by 5.35 percent on July 1, in the east by 6.12 percent after only a small increase in 2021.

In the east it is the strongest increase since 1994, in the west there has been no such increase since 1983.

However, social organizations and trade unions criticized the fact that the approximately 21 million pensioners should hardly benefit from the high inflation. 

Pension: the catch-up factor is to come into force again

The draft law by Social Affairs Minister Hubertus Heil (SPD) also provides for improvements in the disability pension.

About three million people should get more money in the long term.

Surcharges of up to 7.5 percent are planned from July 1, 2024.

In particular, the financial situation of those who were unable to work due to illness a long time ago or who were only able to work to a limited extent should be improved.

In addition, the so-called catch-up factor is to be reinstated, which has a dampening effect on pension increases*.

Pensions are adjusted on July 1 of each year depending on wage developments.

If wages fall, the applicable pension guarantee prevents pension benefits from falling as well.

In the worst case, there will be zero rounds, like last year.

When wages rise again, the catch-up factor is intended to mathematically compensate for this prevented reduction in pensions, so that pension increases are lower.

The grand coalition had suspended the catch-up factor, and now it is being reinstated.

Pension: the trade union federation sees the catch-up factor critically

This is welcomed by employers.

The Confederation of German Trade Unions (DGB), on the other hand, criticized the step and called it a "serious technical error".

The government is thus permanently decoupling pensions from wage developments, said DGB board member Anja Piel.

"For present and future generations, that means a real reduction in pensions."

Without the catch-up factor, the increase this summer would be even greater.

Piel also pointed out inflation*: "The pension increase, which was comparatively good this year, will be completely eaten up by the rising prices." only had a small increase.

"Pensioners are also massively affected by inflation-related cost increases," said Managing Director Ulrich Schneider of the editorial network Germany (RND).

As a result of the increase, a monthly pension of 1,000 euros, which is only based on western contributions, will increase by a good 53 euros on July 1st, and an equally high pension with eastern contributions will rise by 61 euros*.

The fact that pensions in the east are rising more than in the west is due to the so-called adjustment staircase: by 2024, the pension value in the east will be gradually adjusted to that in the west until it is the same.