The federal government’s latest pension reform is a step in the right direction. However, it cannot stop the increase in poverty in old age, especially among women. There are four key priorities missing from pension policy that need to be addressed.
The new pension package has some positive elements. Stabilizing the pension level at 48 percent is the right priority. However, the increase in contribution rates from 18.6 to 22.3 percent means too much additional burden for companies and employees, which is at the expense of the younger generation. Linking the statutory pension to the development of wages (and not just inflation) is also good, even if this should be better financed through subsidies than through contributions.
The decision not to further increase the retirement age is understandable. Because as scientific studies show, there are already more than two million employees who will become unable to work before retirement age. A significant increase in the retirement age would further increase this number and also increase the risk of poverty in old age and increasing inequality. However, the retirement age must become more flexible in order to enable more people to work for longer, to relieve the burden on the statutory pension system and to somewhat alleviate the problem of skilled workers. The FDP and Federal Finance Minister Christian Lindner have correctly emphasized this again and again, but have not implemented it in this reform.
The biggest weakness of the pension package, however, is the inadequate protection against poverty in old age. It will increase sharply in the next two decades because more and more people with interrupted working histories and low wages are retiring and have such low pension entitlements that they will not be able to use the money to protect themselves against poverty.
Newsletter
Fratzscher’s distribution questions
By registering you take the Data protection
to note.
Thank you! We have sent you an email.
Check your mailbox and confirm your newsletter subscription.
In order to address this problem, the basic pension was introduced in 2021, which, however, only pays a supplement to employees with low wages and incomes and at least 33 years of employment. A study by DIW Berlin
shows that, at just under one million, significantly fewer people in Germany are claiming the basic pension than originally forecast. It is received by three times more women than men. Actually, more than twice as many pensioners would be individually entitled to such a supplement. These are mainly women. However, an income test is mandatory – and many women ultimately do not receive the supplement because their husbands have higher demands.
Protect women better
Politicians urgently need to do more to better protect women in particular who have done a lot for society – for example through care and caring work for relatives – and who have worked for low wages. The new pension package is therefore also a missed opportunity. It would make sense to introduce a minimum pension, similar to Austria or the Netherlands, which guarantees all employees unconditional minimum security in old age. This would be the most effective instrument against poverty in old age. An automatic and unconditional nature of such a pension is important, as studies showthat almost 60 percent of all pensioners who are actually entitled to basic security in old age do not take advantage of it out of shame, self-respect or fear.
A second adjustment screw is employment with better wages and pension entitlements. More people must come into the labor market with more working hours and better wages so that the pay-as-you-go pension system can continue to be effective and people have better protection against old-age poverty in the future. Women in particular have a double disadvantage: they receive significantly lower pay than men, and the gender pay gap in Germany is still one of the highest among industrialized countries at 18 percent. In addition, half of the women work part-time, but many would like to work more, but are unable to do so because the range of daycare centers and schools is inadequate, because the compatibility of family and work in companies is too often geared towards men and because The tax system provides incentives so that women do not work or work less. A reform of spousal splitting and co-insurance is necessary in order to sustainably reduce old-age poverty among women, at least in the long term.
Generational capital does not increase pensions
The third shortcoming of the latest pension package is that generational capital is not effective in ensuring better protection against poverty in old age. The German state wants to invest 200 billion euros by 2030 in order to be able to use the returns to pay a subsidy to the statutory pension. However, this will hardly increase pensions. The federal government would be much better advised to invest the money in education, innovation, infrastructure and public services. And it should have waited until it had a smart plan to strengthen private provision. Strengthening private provision, similar to what Sweden is doing, for example, makes sense and is necessary in order to help people privately make better provision for old age.
However, the federal government must provide significantly more financial support to people with low incomes and wages than before. 40 percent of people in Germany have practically no savings, and many earn too little to be able to save much for old age during their working lives. Politicians should therefore focus their efforts primarily on people with low wages and pension entitlements in order to limit poverty in old age and to use state funds in a targeted manner. This requires a reform of the equivalence principle so that people with low wages receive higher pension entitlements for every euro they pay in – which is fair, as they also have a significantly lower life expectancy and therefore the length of time they will receive their pension.
The blind spot in the new pension reform is the insufficient support for people with low pension entitlements – especially women, who have often made a lifelong contribution to family and society and disproportionately end up in poverty in old age. The federal government should step up its pension reform and, through a guaranteed minimum pension and reforms in the labor market and the tax system, give women in particular better opportunities to live a self-determined life and be able to better protect themselves against poverty in old age.
The federal government’s latest pension reform is a step in the right direction. However, it cannot stop the increase in poverty in old age, especially among women. There are four key priorities missing from pension policy that need to be addressed.
The new pension package has some positive elements. Stabilizing the pension level at 48 percent is the right priority. However, the increase in contribution rates from 18.6 to 22.3 percent means too much additional burden for companies and employees, which is at the expense of the younger generation. Linking the statutory pension to the development of wages (and not just inflation) is also good, even if this should be better financed through subsidies than through contributions.