When it comes to the future of the German pension system, there is hardly a slogan that is taken up as often as that of the then Labor and Social Affairs Minister Norbert Blüm from the 1986 federal election campaign: “Because one thing is certain: the pension.”
Of course, everyone in Germany wants good old-age provision. For many years, politicians have therefore tended to keep pensions at a stable level with more and more tax money from the federal budget and even to decide on new pension policy benefits.
Only one crucial point is ignored: in the theory of the contract between generations, on which our pension system is based, the employees who are still working pay into the pension fund together with their employers in order to finance the pensions of the elderly and later their own pensions from the elderly future generations – a pay-as-you-go process.
A third of pension payments come from taxpayers’ money
In practice, however, the pension system has not been self-financing for a long time, mainly as a result of demographic change. Fewer and fewer young people who are working are facing more and more older people who are retired. Almost a third of the income from statutory pension insurance now comes from taxes. Since 2020, this has been more than 100 billion (!) euros per year – and the trend is rising.
In the medium term, every worker has their “own” pensioner to pay for.
Christopher Ploss
In 1960 there were about six contributors for every pensioner. Today, two contributors have to finance a pensioner. If developments continue like this, every employee will have their “own” pensioner in the medium term, for whom they will have to pay. That can’t work in the long run.
Anyone who does not only think about today in the short term and also feels obliged to future generations must therefore think about the following questions: How should our welfare state and our social security systems be designed so that they can be financed across generations? What answers do we need against the background of demographic change?
You don’t have to be a mathematician to see that this is not possible
For a long time there was a political consensus not to ignore such questions, but rather to solve them across party lines. An example: In 2005, almost all political forces in the first Merkel government agreed that reforms were necessary in view of the demographic development.
The former SPD chairman and Labor Minister Franz Müntefering aptly summed up this consensus more than fifteen years ago with the following words: “Fewer children, start work later, leave earlier, live longer, pay longer pensions: If you put all of this side by side , you don’t have to be a mathematician, because the Sauerland elementary school is enough to know: That can’t work.
The more tax money flows into the pension fund, into statutory long-term care insurance or into additional services, the less money is left for education, research, digitization, defense spending or our country’s infrastructure.
According to calculations by the Market Economy Foundation, the additional pension policy benefits of recent years alone, such as the pension at 63, cost about as much as the federal government spends on transport investments, i.e. for roads, bridges and rails, among other things.
Certainly everyone who works hard should be able to live well in old age. But unfortunately, a number of billions in taxes are now also going to people who do not need any additional social benefits. A functioning, solidly financed pension system is therefore directly linked to the future viability of our country. Providing more and more grants from the federal budget and unthinkingly deciding on new social benefits must not be an option in a generation-fair and future-oriented country.
With a view to the children and young people in our country, it will be all the more important to campaign for pension policy reforms and a well-targeted welfare state. This includes the courage to link working life to average life expectancy. Other European countries such as Norway, Estonia, Denmark, Finland, the Netherlands, Portugal and Slovakia have been following this path for a long time.
It is also important to me that poverty in old age is combated in a targeted manner.
Christopher Ploss
To avoid misunderstandings: I too want the achievements of people who have worked hard for decades to be recognized and financially rewarded. It is also important to me that poverty in old age is combated in a targeted manner. But I also want our welfare state to be strong and permanent. To do this, it must be financed and set priorities.
Individual pension cuts are important here: a furniture mover who does strenuous physical work every day and starts working at the age of 18 should be able to retire earlier than a doctor who only starts working in her late 20s. A roofer should no longer be exposed to wind and weather at the age of 70. Academics or office workers, on the other hand, will be able to work a little longer – and have to, if we want to secure the pension system in the long term.
In the last years of his life, the great Helmut Schmidt from Hamburg repeatedly addressed the “ageing” of society and the associated problems. A gradual increase in the retirement age is the only way to prevent pension contributions from ever increasing or pensions from having to be cut. If we wanted to maintain the welfare state, then we would have to work longer in the future, said the former Chancellor.
Anyone who expresses this so clearly today would probably be defamed as “neoliberal” or even “right-wing” by the current SPD leadership. However, it would be wiser if today’s Social Democrats and other politicians were to orient themselves more towards Helmut Schmidt than towards Saskia Esken.
In view of the aging electorate, many are reluctant to tackle pension policy challenges. I think that’s wrong, because most grandparents and parents care about how their grandchildren and children will fare in the future. Rather, those who take intergenerational equity seriously should support a well-targeted welfare state that helps the vulnerable and places a focus on investing in early childhood education. “Invest early instead of repairing late” should be our motto.
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Source: Tagesspiegel
I am an author and journalist with a focus on market news. I have worked for a global news website for the past two years, writing articles on a range of topics relating to the stock market. My work has been published in international publications and I have delivered talks at both academic institutions and business conferences around the world.
