The German fund industry association, BVI, has labelled the plan of chancellor candidate for the Green Party Robert Habeck to use profits from investments to finance social security contributions as a “populist foolish idea” that can have a negative impact on private pensions.
Using returns on investments to finance social security expenses can, according to BVI, impact pension investments in Germany’s third pillar pension system (private pensions), instead of creating incentives for people seeking higher returns with their retirement savings.
“Employees who use [their] income, that has already been taxed and charged with social security contributions for their retirement provision, should be asked to pay,” BVI’s chief executive officer Thomas Richter said.
He added: “Instead of creating incentives for private pension provisions, Habeck undermines them, which is anything but solidarity.”
Habeck, currently vice chancellor, said in an interview that the Greens propose to tax returns on investments to pay social security contributions for health, pensions and unemployment insurance, now paid through wages.
“Capital income will be subject to higher taxes – that would be a step towards more solidarity within the [social security] system,” Habeck added.
Social security contributions have risen in Germany and are set to increase over the next years, depending also on the pension policy of the future government.
“We once had a social guarantee [stipulating] that social security contributions should not rise above 40% of gross wages. It’s already broken [the mark] – we are at 42%,” said Nicolas Ziebarth, head of research department, labour markets and social insurance, at the Leibniz Centre for European Economic Research (ZEW), adding that forecasts are predict to reach 50% in the next 10 years.
“That is a short period of time, and there is no funding for this [increase],” he added.
Ziebarth believes that a pension reform is necessary but the parties are shying away from bringing “uncomfortable truths” to voters during the electoral campaign.
The Union, the alliance of Christian Democratic Union (CDU) and Christian Social Union (CSU) leading in the polls ahead of elections in February, has ruled out pension cuts.
The Social Democratic Party has promised to stabilise the pension level at 48% of the average wage, and populists of Alternative for Germany (AfD), and Bündnis Sahra Wagenknecht (BSW), a spin-off of The Left (Die Linke) party, promise to increase the amount of pension payouts.
The Greens have relaunched the idea of a state fund in the first pillar investing assets to stabilise the pay-as-you-go system “with enough income”, and another state fund in the third pillar to eliminate taxes, fees and the “insurance margin”, Habeck said in the interview.
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