Demographic imbalance: pension policy – ​​only smart from damage

There has often been good news about retirement lately.

The high level of employment despite the pandemic and energy shortage is providing unexpected financial relief.

Instead of the feared deficit, the statutory pension insurance reports a surplus of 2 billion euros.

The pension contribution rate has been 18.6 percent for four years.

Instead of temporarily reducing the contributions to relieve employees and employers, the last grand coalition unfortunately preferred to expand benefits.

According to current forecasts, the traffic light coalition is still calm on the contribution front.

A sharp increase in the contribution rate is probably unavoidable until the middle of the next election period, much later than expected according to earlier estimates.

The strong demand for labor even before Corona is also boosting wages, which the state is also supporting through short-time work during the ongoing crisis.

Since the pension adjustment is based on wages, the earnings of the 21 million pensioners in the past decade have usually increased much more than in the previous decade.

And although the jump in inflation is only now being reflected in the collective bargaining rounds, there was an astonishing plus of more than 5 percent in the west and more than 6 percent in the east this year.

For 2023, 4 percent are in question.

Sure, the pensioners are now also feeling the loss of prosperity caused by the crisis in real terms.

However, the contract between generations does not mean that only growth is distributed.

High federal grants

Of course, the federal government also covers the rising pension expenditure with high subsidies.

However, the currently still quite comfortable situation of the pension fund is also the result of the labor force participation of older people, which has been growing for a long time - which unfortunately can no longer simply be continued.

The figures from the Federal Institute for Population Research, which were reported in advance by the Frankfurter Allgemeine Sunday newspaper, make you sit up and take notice.

After that, the trend is broken.

For the first time in 20 years, the labor force participation of older people is no longer increasing, but is stagnating or even shrinking slightly.

This could widen the gap between the start of statutory retirement (around 66) and actual retirement (currently 64).

This is doubly worrying: the pension fund is lacking the income from possible contributors, and at the same time the shortage of skilled workers is worsening on the labor market.

The break in trend has several causes, including incorrect political decisions by the SPD and the Union.

Because with the “Retirement at 63” in 2014, they once again opened the door to an early pension without deductions, even if only for those who have made contributions for 45 years.

The success of the new early retirement scheme, which every third new pensioner used recently, exceeded expectations, and high-earning, sought-after skilled workers in particular make good use of it.

Previously, various federal governments had laboriously blocked the expensive routes to subsidized early retirement.

The first grand Merkel coalition, initiated by SPD Labor Minister Müntefering, even had the courage to gradually increase the statutory retirement age from 65 to 67 by 2030.

In doing so, it took account of increasing life expectancy and relieved the younger generation.

The pension policy, which has finally learned from damage, also created incentives for employers to keep people in the work process longer.

The automation of many work processes and better health care ensure that more and more older people can keep up physically.

Unfortunately, the Union and the SPD did not remain wise for long.

With the "retirement at 63" they signaled far beyond the rewarded groups that working longer hours is not so important socially and that it is financially manageable.

In addition, they extended benefit entitlements at the expense of younger people.

Now the first damage from this pension policy zigzag course is becoming visible – with the premature exit of baby boomer workers.

The following years are too sparsely populated to fill the gaps.

Now it's up to Chancellor Olaf Scholz and his traffic lights to make sense of the damage.

It is not enough to rely on immigration and hopefully calculate the numbers.

In order to exhaust the existing reservoir, initiatives against part-time work and the easing of rigid working time limits are needed.

In addition, the statutory retirement age must continue to be linked to increasing life expectancy.

Forward-looking politicians are now planning for the period after 2030. The traffic light finds good advice in the previous year’s report by “Wirtschaftswise”.

The demographics chapter is more relevant than ever.