German economist and pensions expert Bert Rürup has proposed channelling one percentage point from VAT to the first-pillar pension system, a form of public subsidy to stabilise the contribution rate of the pay-as-you-go pension system, in an article published by Handelsblatt newspaper.
One percentage point from VAT would mean channelling €16bn per year to the first-pillar pension system, he added.
Rürup’s idea is akin to a model chosen in Switzerland under the reform of the first-pillar AVH21, with the increase of VAT by 0.4 percentage points used to fund the AHV compensation fund.
Rürup considers VAT funds the only viable option to stabilise the increase of contribution rate in the pay-as-you system.
The previous ‘traffic light’ coalition government in Germany – the Social Democratic Party (SPD), Greens and the Liberal Party (FDP) – calculated that the contribution rate will exceed the 20% mark in 2030, to reach 21.3% in 2024, Rürup said.
The contribution rate to the first pillar would increase to 22.3% with the reform package Rentenpaket II, which included a level of pension, stable at 48% of the average wage and the generational capital equity fund, proposed by the ‘traffic light’ coalition, but not approved by Parliament.
Economically obvious measures to stabilise the contribution rate, such as linking retirement age to life expectancy, are not easy to enforce, Rürup wrote.
The SPD and the Union, the alliance between the Christian Democratic Union (CDU) and the Christian Social Union (CSU), which could potentially form a grand coalition ruling Germany in the next four years, have rejected a retirement age increase.
“In addition, the effect of an extension of working life would be irrelevant for the finances of the [first pillar] pension fund, as it could not begin until 2032 at the earliest, when the pension at 67 is fully implemented,” Rürup said.
His comments come as the plan for the generational capital public equity fund, a watered-down version of the equity pension (Aktienrente) based on the Swedish premium pension model, could be abandoned by the next German government.
The FDP, which spearheaded the idea of a public equity fund to slow down an increase in terms of contribution rates in the first-pillar system, would not have seats in the Bundestag (Parliament) in the next legislative period, since it failed to reach the 5% of the votes in Sunday’s general election, necessary for a seat in Parliament.
The latest digital edition of IPE’s magazine is now available
No comments yet