The social partners have criticised the German government’s plans to further cut funds for the first-pillar pension system manager Deutsche Rentenversicherung (DRV) in its 2025 budget.
Hans-Jürgen Urban, board member of IG Metall responsible for social policy, told IPE that if public funds for the DRV are cut again, there is a risk that contributors will be placed under a greater financial strain regarding “non-insurance benefits” – for example, the so-called mother’s pension (Mütterrente).
Financially weakening the statutory pension system would discredit its reputation, he added.
The government plans to reduce public subsidies for the pay-as-you-go system between 2025 and 2027, according to the 2025 budget published last week.
The measure would lead to cutting €2bn between 2025 and 2027, which would adds up to €500m in special payments withdrawn for the period 2022 to 2025, and a cut amounting to €1.2bn per year in the years 2024 to 2027, slashing the budget of the first-pillar manager by more than €8.8bn by 2027, according to DRV.
“Contributors would have to pay for these cuts. The coalition is thus continuing on its path, increasing social contributions even further,” the Confederation of German Employers’ Associations (BDA) said in a statement.
IG Metall thinks that the first pillar pension system should be turned into a form of employment insurance also open to civil servants and self employed, to channel money from different sources.
“The statutory pension [system] needs reliable, increasing public funds, also in light of demographic changes,” Urban said.
The parliament (Bundestag) will have to approve the budget for 2025, in parallel to the reform of the first-pillar system put forward through the Rentenpaket II (pension package II), which stabilises the level of pension at 48% of wages until 2039, and establishes the generational capital equity fund.
“It doesn’t add up if, on the one hand, [there is] the most expensive law of this century, the pension package II, and, on the other hand, now, once again, funding for the statutory pension system is cut. It is time to reflect and give up both plans,” BDA said.
Germany cannot afford the pension package II, and budget problems must not be solved at the expense of contributors, it added.
By cutting funds, the government is jeopardising the trust in the ability of the first-pillar system to pay out pensions in the next few years, DRV said.
Moreover, the impact on income and expenditure of the Growth Initiative (Wachstumsinitiative), a corollary of the budget for 2025, on the DRV is not yet clear, it added.
According to the growth initiative plan, employers’ contributions channelled towards the DRV would be paid out to employees, if they decide against voluntary contributions to the first-pillar scheme.
Employees would also receive health insurance contributions saved by the first-pillar manager as a pension deferral, tax-free bonus.
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