The German government plans to cut €500m earmarked for this year to financing the institution managing the first pillar pension scheme Deutsche Rentenversicherung, as the payment is no longer necessary, according to the draft budget for 2022 approved by the cabinet last week.
The government supported by the so-called traffic-light coalition – the Social Democratic Party (SPD), the Free Democratic Party (FDP) and the Greens – is making the first move to reform the country’s pension system since taking office.
The coalition partners have agreed to reform the first pillar pension system by adding a capital-funded component with start-up financing of €10bn to invest in equities, a proposal called ‘Aktienrente’ – similar to the Swedish model.
The coalition partners also intend to stimulate the occupational pension further by allowing investment with higher returns, to social partner pensions not yet put in place.
The governing parties have also promised to set up a fund for the third pillar system to offer an inexpensive pension product and the possibility to legally define a private pension product with higher returns than the Riester-Rente, according to the coalition agreement.
The budget foresees a total of €107.7bn in public spending for the Deutsche Rentenversicherung this year, according to the draft budget.
Debate restarts
The coalition partners are “intensely working” on the equity pension project, which is “an integral part of pension legislation of the coalition,” Johannes Vogel, deputy chair of the FDP party, said on Twitter in response to a report by Bild Zeitung which alleged that the coalition had given up on the equity pension plan.
The Aktienrente proposal had raised questions within the governing coalition with Markus Kurth, responsible for pensions policy for the Green Party, underlining the mismatch between the original idea and the actual proposal in the coalition agreement.
Reflecting on the first pillar reform, Kurth pointed out that it does not include financing through contributions and the possibility of setting up individual savings accounts for equity investments, while returns from €10bn investments have only a “symbolic effect”, he said.
Additional funds are required if investments have to effectively support the statutory pension, he said, adding that so far it is unclear where the €10bn would come from, further funds from taxes or debt financing are unrealistic in view of the tight budgetary situation.
The parliament has debated the topic of pensions for the first time in the new legislature after the draft budget was presented to the public by finance minister Cristian Lindner.
“The start-up capital [of €10bn] for the equity pension, firmly anchored in the coalition agreement, is a good foundation” to work towards a pension less dependent on demographic developments supplementing the statutory pension with a capital-funded component, said Anja Schulz, responsible for pensions policy at the FDP party, during a parliamentary debate on Friday.
“We want a [public] fund that invests globally and is managed by professionals. The financing problems for pensions can be alleviated through smart investments in the capital market,” she said.
Matthias Birkwald of the leftist party Die Linke said during the debate that the coalition’s decision to completely cut €500m from the Deutsche Rentenversicherung’s financing budget “exacerbates the financial problems of the statutory pension and “that’s irresponsible.” Die Linke demands to double the reserves for pensions.
The sustainable financing of pensions is one of the greatest challenges in the coming years, according to Tanja Machalet, responsible for pensions policy for the Social Democratic Party (SPD).
Therefore it is necessary to take measures to permanently secure a minimum level of pensions at 48% of the average wage, support low earnings retirees, and reinforce occupational and private pensions, she said.
The budget has been drawn up during “very intensive weeks” of talks in coordination with other ministries under a “constructive spirit”, finance minister Christian Lindner said in a press conference to explain the architecture of the first budget proposed by the traffic-light coalition for 2022
He added that now it is the time to translate policies into numbers.
The budget could have been a step towards the “normalisation of the fiscal policy” in Germany after two years of a pandemic but the situation has “fundamentally changed” after the invasion of Ukraine by Russia which will result in additional expenses, therefore the government will submit a “supplementary budget”, the finance minister said.
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