The pension increase in the next year is expected to be less than expected

The pension increase for the around 21 million pensioners in Germany is expected to be less pronounced in the coming year than previously expected. With a view to the coalition agreement between the SPD, the Greens and the FDP, the acting Federal Labor Minister Hubertus Heil (SPD) told “Bild am Sonntag”: “The forecast was 5.2 percent. Now I expect pensions in Germany to rise by 4.4 percent from July 2022. That is still very neat. “

This year, the corona pandemic resulted in a zero rate for pensions in the west, in eastern Germany there was an increase of 0.72 percent in the course of the pension adjustment. The reason was the cyclical slump in premium income. A pension guarantee, however, prevents pension cuts. For the coming year it was expected that pensions would rise by more than 5 percent: by 5.2 percent in western Germany and by 5.9 percent in the east.

The reason for the pensions that are now rising less sharply in the coming year is that the traffic light coalition wants to reintroduce the so-called catch-up factor. The coalition agreement states that this factor in the pension calculation should be reactivated in good time before the pension adjustments from 2022: “This is how we ensure that pensions and wages develop in unison in the course of the Corona crisis and strengthen intergenerational equity as well as stability of the contributions in this legislative period. “

Heil told the newspaper: “Two central concerns are important to me: With a government led by Social Democrats, there will be no pension cuts. And: The pension development must not be decoupled from the wage development. That is why we ensure a stable pension level over the long term. “

What the catch-up factor means

The development of statutory pensions basically follows the development of wages. However, the pension guarantee that has been anchored in law since 2009 in the wake of the financial and economic crisis prevents pension cuts if the wage bill has fallen. In return, a catching-up factor should ensure that this effect is balanced out: that when wages rise again, the prevented pension reduction is compensated mathematically – the pension therefore rises less sharply. The aim was to ensure that the pension guarantee does not lead to a permanent additional burden on the contributors. The black-red coalition had suspended the catch-up factor from 2018 to June 2026.

Employers welcomed the plans of the traffic light coalition. The general manager of the Confederation of German Employers’ Associations, Steffen Kampeter, told the German Press Agency on Sunday: “The traffic light’s clear commitment to reintroducing the catch-up factor must now be implemented without any compromises.”

Pension cuts are excluded

Pension guarantee and catching-up factor belonged together. The pension guarantee has saved pensioners from a significant pension cut of more than 3 percent this year. It is a requirement of fairness to fully take this financial advantage from the pension guarantee into account in the next pension adjustments, if an economic recovery sets in.

“The negative economic consequences of the pandemic must be distributed evenly and fairly across the generations in the pension insurance system,” said Kampeter. “Without a catching-up factor, pensioners would become crisis winners at the expense of the contributors, because pensions would then rise faster than wages.”

At the German Trade Union Confederation, however, the traffic light project met with criticism. Board member Anja Piel told the dpa on Sunday: “The reintroduction of the catch-up factor will practically ensure that pensions rise more slowly than wages and thus retirees will be further decoupled from the development of wages. Even without the catching-up factor, pensions will rise more slowly than wages from 2020 to 2025. “

Interestingly enough, Olaf Scholz plays an important role in the catch-up factor. Scholz was Federal Minister of Labor when the new pension mechanism was introduced in 2008. When the catch-up factor was suspended ten years later, the SPD politician was Federal Minister of Finance and Vice-Chancellor. Now the catching-up factor is likely to experience a comeback – if nothing comes up, under a Federal Chancellor Scholz.

No more double taxation of pensions

In addition to the catching-up factor, the traffic light plans further reforms in the pension. Good news for not-yet-retirees: The coalition now wants to keep a promise that Scholz made as finance minister. The taxation of retirement income will be changed in order to avoid inadmissible double taxation. The traffic light reacts to a fundamental judgment of the Federal Fiscal Court from May.

According to the coalition resolution, contributions to pension insurance should be fully deductible as special expenses from 2023 and not, as originally planned, from 2025. Future pensioners will also be relieved: The taxable part of their pensions is to rise more slowly than previously planned. From 2023 it should only go up by half a percentage point. “Full taxation of pensions will not be achieved until 2060,” says the coalition agreement. Originally, 100 percent of the pension should have to be taxed as early as 2040.

How the traffic light tries to prevent a financial shock

Pension experts have long warned of a financial shock in the statutory pension insurance when the baby boomers retire. In the next three or four years there will be more than three million new pensioners, warns Axel Börsch-Supan, member of the scientific advisory board of the Federal Ministry of Economics. The coalition hopes to raise the additional contributions through higher employment of women and the elderly, as well as through skilled immigration.

What does a capital stock of ten billion euros bring?

In addition, part of the pension contributions are to be invested in the capital market. At the start, the German pension insurance is to get a capital stock of ten billion euros from budget funds. But whether that is enough is viewed critically in the case of pension insurance. A capital stock would have to be filled with “very, very substantial sums” if the pension level and contribution rate are to be permanently secured. The problem: 100 billion euros a year are already flowing into the pension fund from the federal government through grants. (with dpa)