The Retirement System in Germany

In our application form the group has put down the intention of firstly dealing with the economic crisis in Europe: ’youth unemployment as well as retirement and pension systems’ (cf. D4 and G2).

As the latter topic could not be discussed during the first meeting in Chambéry, the German teachers chose to present on the blog a short survey about the situation of rent/ pensions in Germany.

The system of old-age pensions (retirement allowances) is facing a crisis in Germany and will deteriorate sooner or later  unless further political measures will be taken. Some reforms have already become effective during the Schröder government ("Agenda 2010") and later.

The main reasons are due to beginning changes in a diminishing birthrate since 1970, higher life expectancy and labour market problems.

The pensions in Germany are based on the so-called "Three Generations’ Contract": during his/her lifetime each citizen is first a receiver, then a contributor and after a professional career an old-age recipient. The working population is the main contributor to making provisions for old-age pensions: the smaller the number of people who work and pay into the Federal Social Insurance Institution, the less money is available; the  longer retired persons live the longer they receive money from the pension fund.

We try to illustrate the topic of superannuation in Germany by presenting two different types of persons:

1. Mr. R (R stands for “Rente”)

During his professional life he had been a salaried employee (“Angestellter”) who finished work in 2012.

He has now started to draw his pension. To receive a full sum of allowance money, we make  mention of some of the essential conditions such as:

- he must have worked for at least 45 years  (each missing month means a reduction of his pension),

- he must have reached the age of 65 years (s.above)  and by 2030 the age of 67,

- his pension money is 50% of his net income (by 2030  he will receive 43%),

- during his working life his employer as well as he as an employee have paid (1/2 each) into the Social Insurance Institution (BVA) the amount of 19,5% of his monthly net income.

2. Mr. P (P stands for “Pension”)

His retirement also begins in 2012. In contrast to Mr. R, he is a civil servant (“Beamter”).

- Up to 2000 he had to work for 35 years (his period of training: military service and studies were fully considered); now he needs 40 years of professional service (2 years at the  utmost and in the future none) to receive a full pension.

- Like Mr. R he has to reach the age of 65 now for retirement to gain the  maximum allowance. From this year onwards he has to work one month more per year and from 2024 onwards 2 months more with the aim of retiring at 67 in 2030. He can choose to retire at the age of 63, but then loses 0,3% of his last income before tax per month. This sums up to a loss of 7,2% for two years of earlier retirement. 75% of his last income used to be paid until 2004; now it has been reduced to 71.75%.

- His pension is being paid by the state from current taxes.

- In contrast to Mr. R, Mr. P has not paid any sum (nor has his employer, the state) into a pension-paying institution.

With a growing number of retiring civil servants, almost all German Federal States will face enormous problems in paying pensions from taxes not having built up reserves.

(by Andreas Freese and Wolfgang Mertens)

Debate: Retirement at 67?

The discussion in Germany concerning the age of retirement at 67 will be presented by two of our students in   PRO  and  CON  statements.

Julia is against. She writes: "A lot of people who have practised manual work which has been physically quite demanding see themselves unable to go on doing so at the age of 65 to 67 or earlier. Looking at Germany’s employment statistics it becomes evident that elderly people (i.e. those between 60 and 67) do not find a sufficient number of jobs and thus   become easily unemployed.

My proposal is: keep the retirement age at 65 and increase the contribution to the Social Insurance Institution for employees from 19.5% up to 22%. Also make people with high incomes contribute more to the system.

With retirement at 67, people would draw a smaller pension with cuts in case they finished work before. A pensioner ( a civil servant or a salaried employee) loses– if he retires between 63 and 66 -  3.2% of his allowance money for each year before 67. Thus earlier retirement before 67 means a hidden cut of one’s pension.

My conclusion: people should finish their professional career at the age of 65 to be able to live their lives with a sufficient pension. Paying a higher contribution of one’s salary during working life should not be a real problem."

(by Julia Röske)

Kevin is for. He offers the following line of argumentation: "The length of pensionable service up to the age of 67 seems to be the only feasible way to finance old-age pensions in the future.

Several different ways of financing the German Federal Social Insurance Institution are possible. I want to name a few: an increase of employees’ contributions; the inclusion into the system of professions that, so far, have not had to pay into the pension fund. Together with the retirement age at 67 an increase of financial contributions will be prevented and the charge on economy will not augment. If not, the rate of unemployment may rise. Furthermore, the already high indebtedness of the State will not become worse.

It is true: people, such as building labourers or roofers, whose job is physically hard will not agree with my ideas.

I, however, vote for the pension at 67: - pensions will not have to be reduced; - old-age poverty will more easily be avoided; - the financial burden of the State will become less; - cost-covering contributions for coming generations will be better regulated."

(by Kevin Maciaszczyk)