Pension: Rising contributions and falling level expected

Created: 06/22/2022, 16:00

Baby boomers are more and more reaching retirement age - that's why pension expenditure is rising and income is falling.

© Sven Hoppe/dpa

Reforms are pending for pensions in Germany.

Because the first generation of baby boomers are reaching retirement age and putting the pension fund under pressure.

Rising contributions are already being predicted.

Freiburg – Contributions to the statutory pension are expected to increase in the coming years.

The pension level, which expresses the security power of pensions in relation to wages, is likely to fall slightly in the coming year.

This was predicted by the chairman of the Federal Board of the German Pension Insurance Association, Alexander Gunkel, on Wednesday at a federal representative meeting in Freiburg.

Gunkel anticipates that pension spending will increase, he said.

Part of the increase is due to the first baby boomers reaching retirement age.

The regular pension increases would have an even larger share.

"The contribution rate is expected to increase in 2025 and 2026," Gunkel said.

He didn't give a number.

Today, the contribution rate is 18.6 percent of gross earnings up to the contribution assessment limit.

An existing statutory upper limit of 20 percent for the contribution rate will not be reached according to previous projections, according to Gunkel.

Pension level is fixed

The pension level will probably decrease slightly in 2023 and will only be just over 48 percent, Gunkel said.

In 2024 and 2025, the pension level will be fixed at 48 percent - according to Gunkel, an existing statutory minimum limit should apply.

Gunkel called on the federal government to include pension insurance in its next pension reform.

It is about the formation of chapters in the pension insurance.

The plans are apparently already advanced, so Gunkel.

Therefore, the pension insurance must now even be integrated "very promptly".

"A project as comprehensive as the partial funding of the pension insurance must not be carried out without the pension insurance and the insured and employers who finance it and rely on their services being appropriately involved."

Federal Labor Minister Hubertus Heil (SPD) announced in April that he wanted to set long-term plans for the future of pensions by the end of the year.

The pension level should remain stable at 48 percent, and the financing will be put on a broad basis by building up a capital stock.

Gunkel criticized: "So far, there have been no official statements on the detailed design."

also read

Top economist Hans-Werner Sinn warns of difficult years ahead for Germany: "The state will be hopelessly overwhelmed"

Ukraine News: Embargo useless?

India is selling Russian oil to the EU at a high price

Challenge baby boomers

The background to the reform plans is that baby boomers are increasingly reaching retirement age - so pension expenditure is rising and income is falling.

So far, the principle of pay-as-you-go financing has applied to pensions: the current expenses are financed by the incoming contributions.

This is to be supplemented by the capital stock.

According to Gunkel, the pension insurance is aware that the federal government has limited financial leeway and wants to comply with the debt brake again.

But the federal government should not consolidate its budget at the expense of social insurance and must pay for social tasks from taxes.

An example of such a task is the basic pension, which has existed since 2021 and is intended to provide long-term low earners with an adequate pension.

Gunkel said that so far almost half of around 26 million pensions have been called to check whether they are entitled to a basic pension.

That puts you on schedule.

Up to the annual pension, all existing pensions would be called for this.

Gunkel also reported on the direct consequences of the Russian war in Ukraine for pension insurance.

Because of the sanctions against Russian banks, around 820 pension payments to Russia and Belarus and 6 to Ukraine could not be delivered at the end of May.

The Federal Representatives' Assembly also confirmed the President of the German Pension Insurance Association, Gundula Roßbach, in office.

She has been President since 2017.

Roßbach honored the 65th anniversary of today's pay-as-you-go pension system through the pension reform of 1957. At that time, the pension insurance had become much more reliable due to the change from the funded method to the pay-as-you-go method, she said in Freiburg.

dpa