GERMANY – Cutbacks in the level of state benefits and the stimulation by reform of the entire pension market in Germany may not be enough to stabilise pension contributions in the long term, says Professor Reinhold Schnabel of the University of Essen in a Deutsche Bank Research report.

Schnabel believes that the statutory pension insurance scheme will need to be reformed further, since the official forecasts for the financing of the new schemes in Germany are based on optimistic future employment levels and the underestimating of further rises in life expectancy, whilst younger members of the scheme should prepare themselves for yet more pension reductions.

Furthermore, according to Deutsche Bank’s research, the statutory pension scheme would benefit from a gradual increase in the retirement age, which, though officially 65, is in practice generally 60.

But there are objections to reform of this nature, especially from the unions, given the persistently high level of unemployment Germany is suffering. It may seem logical that if somebody steps aside, it opens up opportunities for others, but research has shown that countries with a higher retirement age tend to have lower unemployment rates, the report points out.

Another possibility is to reform the education system by shortening the amount of time students spend in it to allow young Germans to start working at a younger age.

Elsewhere, the Deutsche Bank research finds that institutionalised saving in Germany is poised to enter a period of strong growth, encouraged by the introduction of deferred taxation of the Pensionskassen and Pensionsfonds and the total incentivised contribution rate.

Total incentivised contributions are expected to reach €7-8bn by next year, rising to some €30bn in 2008. At a yield rate of 5%, that would give a capital stock of between €160bn and €180bn by the end of the decade.