The German government plans to cut 500 million euros earmarked this year for the financing of the institution managing the first-pillar pension scheme Deutsche Rentenversicherung, because the payment is no longer necessary, according to the draft budget for 2022 approved by the office last week.
The government backed by the so-called traffic light coalition – the Social Democratic Party (SPD), the Liberal Democratic Party (FDP) and the Greens – is taking the first step to reform the country’s pension system since taking office in power.
The coalition partners have agreed to reform the first pillar pension system by adding a funded component with €10bn seed funding to invest in shares, a proposal called “Aktienrente” – similar to the Swedish model.
The coalition partners also intend to further boost occupational pensions by allowing investments with higher returns in social partners’ pensions that have not yet been implemented.
The ruling parties have also promised to create a fund for the third-pillar system to offer a cheap pension product and the possibility of legally defining a private pension product with higher returns than the Riester-Rente, according to the coalition agreement.
The budget foresees a total of 107.7 billion euros in public spending for Deutsche Rentenversicherung this year, according to the draft budget.
The debate resumes
The coalition partners are “working intensively” on the equity pension plan, which is “an integral part of the coalition’s pension legislation”, said Johannes Vogel, deputy chairman of the FDP party, on Twitter in response to a report by Bild Zeitung which alleged that the coalition had abandoned the equity-based pension scheme.
Aktienrente’s proposal had raised questions within the government coalition with Markus Kurth, head of pensions policy for the Greens, pointing out the disconnect between the original idea and the actual proposal in the coalition agreement.
Reflecting on the reform of the first pillar, Kurth pointed out that it does not include contribution funding and the possibility of creating individual savings accounts for equity investments, while investment returns of 10 billion Euros only have a “symbolic effect”, he said.
Additional funds are needed if investments are to effectively support the statutory pension, he said, adding that so far it is unclear where the 10 billion euros of additional funds would come from taxes. or debt financing are unrealistic given the tight fiscal situation.
Parliament debated the subject of pensions for the first time in the new legislature after the draft budget was presented to the public by Finance Minister Cristian Lindner.
“The starting capital [of €10bn] because the equity pension, firmly anchored in the coalition agreement, is a good basis” for working towards a pension less dependent on demographic development, supplementing the legal pension with a capitalized component, said Anja Schulz, head of the pension policy to the FDP party, during a parliamentary debate on Friday.
“We want a [public] fund that invests globally and is professionally managed. Pension funding problems can be alleviated through smart capital market investments,” she said.
Matthias Birkwald of the left-wing Die Linke party said during the debate that the coalition’s decision to completely cut 500 million euros from the funding budget of Deutsche Rentenversicherung “exacerbates the financial problems of the legal pension and” it is irresponsible “. Die Linke demands the doubling of reserves for pensions.
The sustainable financing of pensions is one of the biggest challenges for the coming years, according to Tanja Machalet, head of pension policy for the Social Democratic Party (SPD).
It is therefore necessary to take measures to permanently guarantee a minimum level of pensions at 48% of the average salary, support low-income pensioners, strengthen professional and private pensions, she said.
The budget was drawn up during “very intensive weeks” of talks in coordination with other ministries in a “constructive spirit”, Finance Minister Cristian Lindner told a press conference to explain the architecture of the first budget proposed by the traffic light coalition. for 2022
He added that now is the time to translate policies into numbers.
The budget could have been a step towards the “normalization of fiscal policy” in Germany after two years of pandemic but the situation has “fundamentally changed” after Russia’s invasion of Ukraine which will lead to additional expenditure, so the government will present a “supplementary budget”, declared the Minister of Finance.