Tuesday, January 04, 2022
Development over 20 years
Pensions rise faster than inflation
The annual pension increases are not based on the cost of living, but on the development of wages. An evaluation shows: Between the years 2000 and 2010 there is no inflation compensation for pensioners. Things have looked better in the past decade.
Since the turn of the millennium, pensions have risen faster than inflation. That comes from an evaluation of the German pension insurance (DRV) for the “Süddeutsche Zeitung”. According to this, consumer prices increased by 32.4 percent between 2000 and 2020. During this period, the gross standard pension increased by 37.6 percent in the west and by 53.8 percent in the east.
According to the analysis, the two decades were very different: from 2000 to 2010, pensions lagged behind inflation. While inflation rose by 16.6 percent during this period, the standard pension rose by 9.5 percent in the west and by 11.7 percent in the east. This was not least due to the pension reforms after the turn of the millennium and the financial crisis with the subsequent recession, which put pressure on wages and thus also on pension adjustments.
According to the DRV evaluation, it was the other way around in the past decade: from 2010 to 2020, inflation rose by 13.5 percent. The standard pension rose by 25.7 percent in the west and by 37.7 percent in the east during this period. In this phase, the economy in Germany was good, the number of employees and contributors grew significantly, and wages and pensions also benefited, writes the “Süddeutsche”.
When calculating the standard pension, it is assumed that a fictitious person earns exactly an average of 45 years each year and pays pension contributions accordingly. This so-called basic pension is currently 1,538.55 euros in the old federal states and 1,506.15 euros in the new federal states before deduction of health and long-term care insurance contributions and before the payment of taxes. According to the DRV, pensioners who have less than 45 contribution years also benefit from the calculated increases.
2021 without inflation adjustment
The year 2021 will, however, worsen the balance, according to the “Süddeutsche Zeitung”. Because for pensioners from the west there was a zero round last year, for pensioners from the east an increase of only 0.72 percent. The inflation rate, however – after the sharp rise in the past few months to up to 5.2 percent – should level off at around three percent year-on-year. This means that pensioners have clearly lost purchasing power in 2021. It could look better again in 2022: According to preliminary calculations, the federal government is expecting a pension increase of 4.4 percent this year. Economists, on the other hand, expect the annual inflation rate to fall back to below three percent in the new year.
Johannes Geyer, pension expert at the German Institute for Economic Research (DIW), warns against evaluating the numbers too positively. The statutory pension was originally designed in such a way that it follows at least the principle of wage developments. This would allow retirees to benefit from the productivity trend in the economy, which is reflected in wage increases. That is the advantage compared to a system that only maintains purchasing power.
But that has changed with the pension reforms. “The pensions are decoupled from the development of the available wages,” says Geyer. As a result, “the security gap in old age, in the event of disability and survivors increases, and the risk of old-age poverty increases”. The pension level fell by almost nine percent from 2000 to 2020. Now the federal government wants to keep the pension level stable until 2025.