sharingPensions.com was privileged
to meet with Dr. Armin Jungbluth, Counsellor (Labour Affairs),
German Embassy, London, on 10 February 2004. Prior
to his current assignment, which began on 1 September
2003, Dr. Jungbluth was
based at the Economics Ministry in Berlin. He has been
dealing with the economic aspects of the social security
systems in Germany for over five years. He followed closely
the work of the commission "Achieving Financial Sustainability
for the Social Systems" which presented its report
in August 2003. He is therefore well qualified to provide
sharingPensions.com with this insight into the major reforms
of the German pension system now taking place.
We first asked Dr. Jungbluth to explain the background
to the changes being made. He explained that State pensions
have always been quite generous in Germany, so that poverty
in old age has never been a problem. However, like most
other European countries, Germany is
"in
Germany, poverty in old age has never been
a problem"
experiencing major demographic changes and, like
the UK, its State pension system is funded on a
pay as you go basis. In 2000, there were about four
people of working age to support each retired person.
By 2050, there will only be about two working people
for
each retired person. To maintain
the current population, each German woman would have to
have an average of 2.1 children. Instead the actual fertility
rate is 1.29 children. 30% to 40% of German women are
choosing not to have any children at all.
On top of this Germany is said to have the oldest students
and the youngest pensioners - reducing overall contributions
to pension funds. Many Germans have been permitted to
retire on pension long before the normal state retirement
age of 65. Further, there is no apparent biological border
to people living longer and longer. On average, in Germany
State pensions provide 85% of pensioners total incomes
compared with just 65% in the UK. Therefore, Germany will
be hit particularly hard by these demographic changes.
At
present, employers and employees together pay the following
rates of social security contributions:
Social
Security Contirbution
% of Earnings
Pensions
19.5
Healthcare
14.3
Unemployment
6.5
Old Age Care
1.7
Total
42.0
Although onerous, the above contributions do not meet
the entire cost of these benefits, with one third of the
State pension expenditure paid by the taxpayers to stop
the above pension contribution rate increasing any further.
There is resistance from employers to employ people due
to high social security costs and it is not surprising
that employers have increased productivity from a smaller
workforce.
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