Pensioners are demanding inflation compensation, which many employees receive. After the start of the war in Ukraine, retirees were particularly affected by the sharp rise in prices. But according to a recent study, that has changed.
Inflation has weakened significantly over the past year. However, the more expensive foods dominated the price increases. This particularly affects households with low incomes because they have to spend a relatively high proportion of their net income on this. This also applies to the bottom fifth of households whose main income earner receives a statutory pension. The inflation rate of these pensioner households last year was 6.4 percent, significantly higher than the inflation rate across all households, which was 5.9 percent according to the Federal Statistical Office. One comes to this conclusion current study of the employer-related Institute of the German Economy (IW), which was supported by the German Pension Insurance.
“The bottom 20 percent of pensioners in 2023 will lack an average of 324 euros in order to be able to afford the same goods and services as in 2018,” calculate the IW economists. According to the study, the higher inflation burden only affects households with comparatively low statutory pensions. Overall, pensioner households were only 0.1 percentage points more affected by inflation last year than other households.
“Pensioners were affected by the high inflation to the same extent as other households in the population,” emphasizes study author Maximilian Stockhausen. Inflation rates differ depending on what households spend and how much money on personal inflation rate can differ significantly from the general inflation rate.
When prices skyrocketed after the start of Russia’s war of aggression against Ukraine, the sharp rise in energy costs particularly affected pensioner households. According to the IW economists, the overall burden leveled out on average over the year 2022 “and was no higher than for other households”. On average, pensioners drive cars less often and therefore have to refuel less.
Pensioners have less to counteract
The crucial difference to the working population is that pensioners are less able to react to higher living costs. Employees can theoretically negotiate higher salaries and sometimes extend their working hours. In addition, many retirees are no longer able to save more money due to their lower incomes. On the other hand, they benefit from pension increases that are based on average gross wages. Statutory pensions will increase with a delay, but in 2022 and 2023 they will increase overall at a similar rate to wages, the economists calculate.
In addition, pensions did not fall between 2019 and 2020, unlike wages per employee. Consequently, according to IW, the purchasing power losses of pensioner households between 2018 and 2023 were 1.7 percent, lower than the purchasing power losses of other households at 2.2 percent. The corona pandemic played a major role, as many self-employed people earned nothing at all and numerous employees earned less due to short-time work. However, pensioner households have, on average, significantly lower incomes than others.
Pensioners have higher wealth
On the other hand, assets must be taken into account. Because they are less indebted than other households, pensioner households have higher assets on average. However, the range is wide: while the top fifth of pensioner households had an average net worth of just under 517,000 euros last year, according to IW, the bottom fifth only had just under 33,000 euros. More than five percent of pensioner households had no net assets at all – and at the same time spent more than their income. This proportion was roughly the same for the other households.
In addition, not every asset can be used for current expenses, for example an increase in the value of owner-occupied real estate. That’s why the calls for an inflation compensation bonus for pensioners – as many employees received from their employers – remain loud, at least from pensioners or social associations. Until the end of the current year, this bonus can amount to a total of up to 3,000 euros, tax-free.
However, the IW economists clearly reject this demand. Because of the particular burden on low-income households caused by high food prices, “targeted” aid such as the housing benefit reform last year was exactly the right thing to do. Since inflation has been falling for several months, no further relief is necessary for the time being.