Social association and pension expert warn of financial problems

by Thorsten Koch
GermanPolicy.com

According to pension expert Axel Börsch-Supan, a “financial shock” might occur if the SPD, FDP and the Greens do not manage reforms of the statutory pension insurance. In view of the more than three million new pensioners to retire in the next three to four years, everything should not be left as it was.

The ‘traffic light’ explorers – SPD, Greens, and FDP – have so far agreed that there would be no cuts in the pension, Börsch-Supan pointed out. This would lead to increasing expenditure, which would have to be financed either through increasing contributions by the workforce or through high subsidies from tax revenues.

“The contribution payers are mostly young people, the taxpayers too,” warned Börsch-Supan, who is also a member of the scientific advisory board of the Federal Ministry of Economics. “The exploratory paper sends a clear message: we are going to protect the elderly and the young have to pay for it.” If part of the pension contributions is invested in the capital market, this is a big leap – but currently, this is wrong and inept. Young people would namely have to finance the pay-as-you-go system and at the same time build up their own capital stock. Conversely, one is only in a position to do market investment when there are many young, and few older, people. Otherwise, the working generation would have to pay twice, according to Börsch-Supan.

Social acceptability in doubt

The social association VdK and the economic research institute Ifo also expressed considerable doubts about the capital coverage for the statutory pension. Investments, specifically pension funds, are not necessarily socially acceptable and could even destroy jobs. The question is also how one should raise ten billion Euros for the capital stock of the pension – without tax increases and property levy, said the president of the social association, Bentele.

The Ifo Institute’s pension expert, Joachim Ragnitz, predicted: “Ultimately, such a measure will only benefit sellers of stocks, in the short term.” The reason for this is that initially, the government will have at most the dividends available. With the resulting income of 400 million Euros per year, this corresponds to “a one-off payment of 20 Euros per pensioner and year”.

“The additional burden on the pension fund due to the baby boomers, who will soon stop working, can be bridged by including civil servants, politicians and the self-employed in the statutory pension insurance”, emphasized Bentele, who is against a lower pension level. “If you cut retirees today, you will get low pensions tomorrow – including today’s young people.” It is “dishonest” to play off young and old against each other when it comes to pensions, Ragnitz commented.

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