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An older couple on a bench: If possible, put an additional 15 percent of your net aside for later
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Hauke-Christian Dittrich/dpa
Federal Finance Minister Christian Lindner (FDP) and Federal Labor Minister Hubertus Heil (SPD) presented Pension Package II this week.
The package isn't just called "2" - it actually has two parts.
On the one hand, the guarantee for the baby boomers that their pensions should remain at the same level as today until the end of the 1930s.
Baby boomers are – roughly speaking – all of us who were born in the 1950s and 1960s during the economic boom.
Speaking of economic recovery – that brings us to the second part of the pension package: Finance Minister Lindner has the opportunity to start the “capital coverage in retirement provision” experiment with state money now.
The experiment itself is even promising.
But the possibilities for relief that it will offer in the future for contributors and pensioners are nothing more than an experiment.
An experiment for which Lindner wants to invest 200 billion euros in the coming years.
What did the two ministers specifically present this week?
First of all, the guarantee clause for the statutory pension: It should remain at the level of 48 percent beyond 2025 at least until the end of the next decade.
This means that the statutory pension will provide just as much security in 15 years, but will leave just as many gaps as it does today.
The message: Nobody has to worry that there will no longer be a decent pension in the future.
But no one should imagine that the standard of living can be secured with the statutory pension.
In practical terms, this means that after 45 years of paying into the pension fund with an average income, the pensioner receives 48 percent of the average employee's income.
That would currently be 1600 euros per month.
The pensioner then still has to pay health and nursing care insurance contributions;
and a few euros in taxes too.
Anyone who has deposited less time or simply smaller sums will get less out of it.
Whoever deposited more, correspondingly more.
Demographic problem
Now you will say, how is that supposed to work?
That will be incredibly expensive because there are more and more pensioners and perhaps even fewer people in employment after decades of growth.
That's what the economists say too.
In addition to the generational pension experiment, the government wants to counteract this trend with a lot of politics, with higher contributions and more money from the tax coffers.
From the point of view of the two ministers, this political countermeasure means, firstly, that as many people as possible work for as long as possible.
At the same time, there should be no further increase in the statutory retirement age, emphasizes Hubertus Heil.
The Finance Minister and Labor Minister have agreed on this.
This means that employers, unions and the state must find models that make it attractive for as many employees as possible to work beyond the age of 67 - without legal pressure.
At the same time, however, we have to “ensure that people can actually work longer,” added the Labor Minister.
Currently, people retire at 64 on average.
Secondly, Lindner and Heil agree that significantly more people from abroad need to come to live and work in Germany.
That's the baby boomer problem: the cohorts that will be retiring in the coming years are about twice as strong as the cohorts coming out of school.
Without migration and longer working years, seven million workers will be missing by 2035. Today, 46 million people work in Germany and 35 million pay into the pension fund.
Thirdly, pension contributions are expected to increase significantly again by 2035 – unlike in the past ten years.
From 18.6 percent at the moment, the lowest level since the 1980s, to almost the level that Austrians have maintained for decades, 22 to 23 percent.
With an income of 4,000 euros per month, this means 80 euros more deductions for the employee and an additional 80 euros contribution for the employer.
These contributions are paid by those who are still working.
So people up to their mid-40s. Baby boomers, on the other hand, will mostly just cash in here.
Fourthly, the state subsidy for the many pension benefits that are not financed by contributions (mother's pension, etc.) should also increase.
This will cost a billion euros from the tax coffers every year - the draft law mentions 7.2 billion euros more in 2035.
The generation capital
Part 2 of the pension package: the generation pension.
In this case, the finance minister managed to circumvent the debt brake and at the same time release up to 200 billion euros by 2035.
A benefit, but only a drop in the ocean given the requirements of the pension system.
Lindner wants to make around 200 billion euros available to a foundation under public law by the mid-1930s.
Essentially in the form of loans, but also through the transfer of 15 billion euros in state silverware.
“We are starting to partially fund the statutory pension,” says Lindner.
Company shares that are not in the public interest should be sold.
Specific names are not mentioned.
This means that ten billion will flow into the pension fund every year from 2036.
That's where the money from the generation pension should go.
The individual pensioner does not go to the capital market himself, but the experienced Federal Republic of Germany does it for him.
Back to the experiment.
The total investment capital of 200 billion euros should generate enough returns to pay the interest on the loans and then another ten billion for the pension fund.
It won't be that easy.
In order to maintain generational capital, divert ten billion annually and have a reserve buffer, an average return of 7.5 percent per year is necessary after the fund's administration costs have already been paid, my “Finanztip” colleagues have calculated.
A real challenge.
Lindner was optimistic on Tuesday that the state could celebrate success with its foundation here.
He sees positive examples: In 2023, the state foundation Kenfo, the fund for financing nuclear waste disposal, which manages the billions for final nuclear storage, would have generated a return of more than eleven percent.
With Kenfo, however, the equity portion is too low to achieve really high returns in the long term.
In the long term, we at “Finanztip” would say that with a high share of stocks, seven percent are possible worldwide.
But individual annual forecasts are not so wise, even for finance ministers.
In the (single) year 2022, the Kenfo Endlagerstiftung, which initially also manages the generation pension, made a loss of 15 percent in one year.
Generational change?!
Which brings us to the core problem of generational pensions.
Things go up and down on the capital markets and then up again in the long term.
That's why it can be useful.
But it has to be able to endure the lows from time to time and it can't let the financial industry make fun of it.
The last two attempts to establish more capital coverage in retirement provision failed due to a combination of the stock market crisis and greedy financial service providers.
Around the turn of the millennium, the Riester discussions also included the option of putting money from pension savers into cheap funds.
Then the dot-com bubble burst, many shareholders found their bankers abandoning them and both politicians and savers were fed up with too much stock market activity.
10,000 euros invested in an index fund on the MSCI World in the summer of 2002 would have become 35,000 euros today.
Seven years later, during the financial crisis, the bankers were once again unreachable for many customers when things crashed.
A lot of trust in the capital market and financial service providers was lost, although the investors who stuck with it at the time have since seen very nice returns.
What does this mean for you?
Please feel free to support the experiment politically and benevolently.
A certain amount of pension security for everyone also brings political peace.
And if civil servants were to take part in the joint statutory pension scheme in the future, instead of giving wise advice from the sidelines and collecting pensions that far exceed any statutory pension, that would certainly also be helpful for the current debate.
More important for all of us: take care of your own supplementary company and private pension provision.
Here too, Ministers Lindner and Heil have announced further reforms by the end of the year.
And in addition to a Riester reform, a retirement savings account could also be part of it.
Things can only get better here.
Until then, if you can, save an additional 15 percent of your net amount for later.
You can do this by simply investing your retirement money in ETFs, in market-wide, global stock index funds.
Investing across the market and worldwide ensures that fluctuations on the capital market should not make you nervous.
If your retirement coincides with a bad phase on the stock market, ideally you should not use too much of the money from your portfolio.
You also have time in retirement, my parents are now 92 and 94.
Or you have bought a property and are simply continuing to pay it off.
When you retire, your house or apartment should be available virtually rent-free.
But remember, a house also needs regular care and support, sometimes a new gutter or a new heating system.
If you have little income and have a lot of children, a Riester contract can still be a good idea.
The funding is then incredibly high.
Anyone who has always paid the minimum contribution in the past few years from 2002 to 2024 without much of their own income has so far had to pay in less than 1,300 euros, but at least 4,500 euros in the account without the provider generating a single cent of return.
With two children still entitled to child benefit, it would be almost 12,000 euros.
And if the boss does a lot and the private pension insurance guarantees a decent pension for every euro, having your own company pension through salary conversion can still be a good idea.
In some companies, employers add 25 or even 50 percent to employees' contributions.
They have to add 15 percent because the model saves them a lot of social security contributions.
Please take care, do something.
Political experiments like this week's alone are not enough.
And waiting is not a good idea when it comes to pension issues.