GERMANY – Germany’s measures to deal with its pension problems, while necessary, are still insufficient, a new report from the International Monetary Fund says.

The comments come after Germany’s new president Horst Köhler – the former head of the IMF - said that Germany has failed to adapt the welfare state to deal with population ageing.

“In the pension system, the recent adoption of a sustainability factor and steps to raise the effective retirement age were necessary and important, but are insufficient to balance the system in the long run,” the new IMF report said.

“Therefore, as is increasingly accepted, the statutory retirement age will have to be raised in line with longer life expectancy,” the fund said in an annual report on Germany.

It said: “Further, employees should be allowed to work longer than the statutory age, if they wish to do so, without being financially penalized.”

The report noted that German financial institutions are putting greater focus on risk management and called the introduction of hedge funds “useful”.

It said: “There have also been useful advances in capital market development, including the introduction of hedge funds as well as new asset-backed securities and inflation-indexed government bonds.”

The report goes on to add that Germany’s labour - which it terms the “Achilles heel of the German economy” – is becoming more flexible.

But it said that high long-term unemployment, particularly among older workers, “remains a major concern, as does the low labor force participation of older workers and women”.

Last week Köhler admitted: “We have not succeeded in adapting the welfare state to the conditions of an ageing society and a changed workplace."

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