German economists are pushing for recommendations to review the country’s pension system for civil servants, which is considered to be a privileged arrangement compared to employees contributing to accrue retirement savings in the first and second pillar pension systems.
The academic body advising on economic policy, the German Council of Economic Experts (Sachverständigenrat), has proposed to split first and second-pillar pensions for civil servants. The pension system for civil servants is an independent social security system in Germany combining first and second-pillar pensions.
Splitting first and second-pillar pensions for civil servants means that new contributions remain available to finance old pensions, Martin Werding, member of the Council of Economic Experts, told IPE.
“Without such a separation, these contributions, which are not offset by pension entitlements during the transition [phase], would subsidise the entire pension system, while financial holes of the same magnitude would arise in the federal, state and local budgets,” he added.
Pensions for civil servants in Germany are funded through a public budget via the fund called Versorgungsrücklage des Bundes, used to relieve public finances from future pension expenses at federal level, and through Pensionfonds set up at state level.
Moreover, for civil servants, the last salary received before retirement counts to calculate the amount of pensions, while in the first pillar the points system (Entgeltpunkte), one of the elements to calculate pensions, is based among other things on the ratio between a person’s income and the average income of all insured.
The amount of pensions received by civil servants is higher than those received by employees contributing to the first pillar Deutsche Rentenversicherung.
In 2023, the average amount of pension received by civil servants in Germany amounted to between €2,980 per month and €3,990 per month for judges and soldiers, men or women, with women receiving lower pension payouts, according to the Old Age Security Report (Alterssicherungsbericht) for 2024 published by the Federal Ministry of Labour and Social Affairs (BMAS).
Employees contributing to the first pillar system (Deutsche Rentenversichering) received on average a pension amounting to €1,338 per month for men, and to €900 per month for women, in 2023, according to the government’s report.
In 2022, public expenditures for civil servants pensions, and other benefits for their survivors, amounted to €62bn, the report added. The economists reject the idea of civil servants joining outright the first pillar scheme because it would be too expensive in the long term.
Werding admits that the proposal to reform civil servant pensions might not be implemented in the future, as it has to be approved simultaneously in national Parliament (Bundestag) and in 16 federal parliaments.
“The government will probably not take the lead on this because the financing problems with current pensions hardly affect it. The federal states cannot easily coordinate because their situations are very different: some have very large civil services, others not so much. Some have large [pension] reserves, others not at all,” he said.
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