financial sustainability for the social security system.
The
pension reforms, which are part of a wider strategy known
as Agenda 2010, were announced by Chancellor Schroeder
in March 2003. Immediate measures implemented in 2004
are:
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No increase
state pensions this year. |
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Increase
in healthcare contributions for retired people |
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Reduced
safety net in the pension system. Previously a reserve
equal to about two weeks total pension payments
was held. Now this is reduced to about one weeks
total pension payments. |
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For new pensioners state pensions
will now commence at the end of the month of their
65th birthday. Previously state pensions commenced
at the beginning of that month. |
There are currently two pieces of legislation going through
parliament. The first Bill is concerned with the pension
system itself. The commission
recommended that the increases in pension benefit levels
be curbed in future, so as to lessen the burden on the
contribution payers. To this end the pension adjustment
formula, which would normally increase pensions in line
with average earnings, should be supplemented by a sustainability
factor. This sustainability factor would have the effect
of reducing the annual pension adjustment if the ratio
of pensioners to contribution payers (pension quotient)
changes to the detriment of the contribution payers. The
sustainability factor takes account of life expectancy,
evolution of the birth rate, the net balance of immigration
and emigration, and changes in employment levels.
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"it
is hoped that the population will be convinced
of the need for changes"
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Dr Jungbluth explained
that the sustainability factor can work both ways.If
there is an increase in contribution payers relative
to pensioners, as a result of a reduction in the
unemployed, older people working to a later age,
more women entering |
employment, or immigration, then pensions
would increase as a result. The other Bill going through
parliament is concerned with the tax treatment of state,
occupational and private pensions.
Over a forty year transition period starting 1 January
2005, there will be a move to a situation where pension
contributions are tax-free and pension benefits are
taxable. Civil servants' pensions are already fully
taxed and state pensions are taxed at a lower rate.
We asked Dr Jungbluth how the proposed
reforms had been received in Germany. He explained that
certain groups, such as trade unions and pensioners
groups, had been very critical about certain measures.
He wonders sometimes who the trade unions actually represent.
Do they represent the workers who would have to pay
ever increasing social security contributions, or do
they represent pensioners who are already well off?
How are German citizens being encouraged
to make private pension provision? Tax incentives are
being changed and made easier to understand with the
current draft legislation. The Riester pension products
introduced in 2001, which are similar in nature to the
UK's stakeholder pensions, are to have less restrictions
to encourage more sales. State pension projections are
being sent to all citizens aged 27 and over. It is hoped
that this will also encourage additional private provision.
There has been some criticism that the illustrations
provided by the pension service have proved to be too
optimistic, and changes are being recommended to the
assumptions used.
sharingPensions.com believes that the
German government has shown courage and leadership with
the Agenda 2010 reforms and thanks Dr Jungbluth for
his time in describing the current pensions scene in
Germany.
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