"Absolutely no means to surpass the set ceiling exist."
In the lead up to Germany's federal election, the Institute of the German Economy (IW) in Cologne has analysed the pension reform plans presented by the major parties. The central challenge for the next federal government is to stabilise the statutory pension, as increasing pension receipt duration and the retirement of baby boomers put pressure on the system.
Jochen Pimpertz, head of the Competence Field Public Finances, Social Security, Distribution at the IW, has been working at the institute since 2001. He teaches the subject of economic basics of health economics at the University of Cologne and holds degrees in business administration, economics, and social pedagogy from the same university.
The IW's analysis reveals that all other parties, including the SPD, Greens, and Left Party, avoid discussing the unpopular topic of increasing the retirement age with voters. However, the CDU/CSU and FDP propose increasing the retirement age, with the FDP explicitly acknowledging the necessity of a further increase in the retirement age.
The benefit level is expected to decrease without reforms, according to the IW's prediction. The benefit level is expected to fall from around 49% to about 44% of gross income without comprehensive reforms. The IW also predicts that the contribution rate for pension insurance will increase from 18.6% to 23.6% by 2060 without comprehensive reforms.
The SPD, Greens, and Left Party have similar content-related proposals, but lack a long-term solution perspective. The IW considers the SPD and Greens' commitment to a benefit level of 48% to be an unrealistic promise, potentially burdening subsequent generations. The Union and FDP aim to maintain the existing form of old-age security, with the Liberals advocating for more flexibility and capital stock buildup.
The FDP is the only party that acknowledges the necessity of increasing the retirement age in its election program. The idea of younger civil servants and self-employed people paying into the pension fund does not solve the long-term problems of the pension system, according to the IW. Additional entitlements from this solution would need to be financed elsewhere in the future.
The IW does not see a solution to the pension system's problems without a further increase in the retirement age. A higher federal subsidy does not reduce the burden on taxpayers, as the necessary tax money still comes from them. The demographic shift and retirement of strong birth cohorts are putting pressure on the statutory pension system, making it crucial for the next federal government to address this issue.
