The trend is clear: there are more and more pensioners and fewer and fewer contributors. The second pension package does not solve this problem. It has two goals: firstly, pensions should continue to rise in line with wages in Germany. Secondly, the government wants to invest money in the stock market in order to put the proceeds into pension insurance. The SPD likes one, the FDP likes the other. An overview.
What does the planned stabilisation of pension levels mean?
The draft law fixes the level of a standard pension until 2039 at at least 48 percent of the average wage paid in Germany at the time the pension is drawn. This was a key promise made by the SPD in the 2021 federal election campaign. Without the reform, the promise would expire in 2025.
In order for this stabilization to work, the traffic light coalition is overriding the so-called sustainability factor, which was introduced in 2004 to prevent sharply rising contribution rates. At the same time, the sustainability factor would have ensured that pension increases would lag significantly behind wage increases in the coming years.
If, for example, a trained nurse earning 3,100 euros per month retires in 2032 at the age of 65 after 45 years of work, her salary would be around 1,500 euros instead of around 1,450 euros thanks to the pension package. “That’s an increase of around 600 euros per year,” calculates the Federal Ministry of Labor.
And the pension contribution?
This is also increasing. The contribution rate is currently 18.6 percent and is split equally between employers and employees. An increase is planned, initially to 20 percent in 2028 and from 2035 to 22.3 percent. The government calls this “acceptable,” but employers see it differently.
Is that fair?
Federal Labor Minister Hubertus Heil says yes to this: “The pension package secures the generational contract for the younger generation as well,” said the SPD politician in ntv’s Frühstart. “And the alternative, especially for the younger generation, would be to watch as contributions rise, pension levels fall and they work longer.”
Not all experts are convinced. “The second pension package is good news for baby boomers – those who are now retiring – because the pension level will remain stable,” says DIW boss Marcel Fratzscher to ntv.de. “But in concrete terms, this also means that there will be an even greater redistribution from young to old.”
How secure is the pension?
One thing is certain: pensions are less secure than they used to be. Until the 1990s, the system was able to finance itself: there were comparatively few pensioners compared to the contributors. This is because the statutory pension insurance does not work like a savings account from which you receive what you have previously paid in. Each generation of pensioners is supported by employees subject to social insurance contributions.
This will soon no longer work: the baby boomers will be retiring this decade. In 1992 there were 2.7 contributors for every pensioner, but now there are fewer than two. A ratio of around one contributor for every 1.3 pensioners is expected for 2050.
What follows from this?
In recent years, the annual subsidy for statutory pension insurance has risen to more than 80 billion euros. This subsidy comes from the federal budget, i.e. from tax revenue. There are not many variables to stabilize the system: the contribution rate can rise, the pension level can fall, or the retirement age can be raised.
Do employees have to work longer hours?
“We really do need a longer working life and a later retirement age, we have to be honest about that,” says economist Marcel Fratzscher. But he also knows that many people cannot work longer than they do today. He therefore rejects rigid regulations: more flexibility is needed: “We must enable people to continue working, in some cases well beyond their normal retirement age. That will ease the burden on the statutory pension, and then there will be more left for others.”
The traffic light coalition sees it that way too – with differences: Lindner argued on the Welt broadcaster for an “individualized retirement age instead of a full pension at 63”, Heil, on the other hand, is sticking to the pension at 63, but has “no objection to people voluntarily working longer”. Fratzscher, on the other hand, points out that one group in particular benefits from the full retirement age after 45 years of contributions: men in good and well-paid industrial jobs. “Women, whose working lives are often interrupted by periods of child-rearing, for example, benefit little from the pension at 63.” The pension at 63 is therefore “more of a redistribution from the bottom to the top”.
However, the second pension package does not bring any changes on this issue. Coalition circles say that steps are being considered to make working in old age even more financially attractive.
What are the benefits of the equity pension?
FDP parliamentary group leader Christian Dürr praised the pension package as a “reform of the century”. The reason for this was the stock pension introduced on the initiative of the FDP: “For the first time in the history of our country, millions of employees and future pensioners are profiting from the capital markets,” Dürr told broadcaster RBB.
The basis for the stock pension is a fund that Lindner has dubbed “generation capital”. A public foundation will manage the money and invest it almost exclusively in stocks. The expected returns will flow into the statutory pension insurance scheme. The fund will be financed with debts that are not counted towards the debt brake. This year the federal government plans to provide twelve billion euros for the future pension fund, and in the following years the amounts will increase by three percent each year, meaning that payments of 22.3 billion euros are planned for 2045.
The federal government points out that the capitalization will not place a greater burden on the state budget in the long term. A capital stock of 200 billion euros is expected by 2035. A first distribution of ten billion euros is planned for 2040.
Fratzscher thinks that is not enough. “It is a drop in the ocean. It will not be enough to better support the statutory pension.” The idea is not fundamentally absurd. However, he is annoyed that the traffic light coalition is taking on debt to finance the low-yielding share pension – but not to invest in education and infrastructure.
And why did it all take so long?
Heil and Lindner presented the second pension package in early March. After that, the mood in the FDP changed. “As it stands at the moment, the pension package does not, in my opinion, meet the requirements of the coalition agreement with regard to providing security for all generations,” said FDP parliamentary group manager Johannes Vogel to the FAZ at the end of March. “That is not enough.” Lindner said today, however, that the FDP had “achieved more than was stated in the coalition agreement.” It was a very good result of the negotiations. “In my view, the second pension package is complete.”
Added to this was the dispute over the austerity targets, which several SPD and Green-led ministries refused to comply with. Here, a coalition between Lindner, Chancellor Olaf Scholz and Vice Chancellor Robert Habeck brought an end to the blockade of the pension package. In return for the pension package, Scholz obliged the ministries to comply with the austerity targets for the 2025 budget.