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Failing pension system

Michael Gessat / gswSeptember 3, 2012

German Labor Minister Ursula von der Leyen tells today's workers that they may face poverty upon retiring. But her proposed fix for the pension system has drawn criticism. The opposition demands more rights for workers.

A hand holding a few euro coins Photo: Karl-Josef Hildenbrand dpa/lby
Image: picture-alliance/dpa

"The New Pension Shock Table" stared down at readers from the headline of the weekend edition of "Bild am Sonntag." The newspaper presented dire numbers and models from Germany's Federal Ministry of Labor and Social Affairs: Those who currently earn 2,500 euros ($3,145) per month before taxes and work full time for 35 years will earn a pension of 688 euros starting in the year 2030. That corresponds almost exactly to today's poverty line for elderly people. Older Germans who receive less money than that per month qualify for an extra subsidy for living expenses, funded by taxpayers.

Poverty in old age is now a threat not only to demographics including housewives, part-time workers and low earners - but to everyone, said Labor Minister Ursula von der Leyen.

"Germans desperately need a reliable pension system in order to avoid poverty upon hitting retirement age," she said.

However, the problem von der Leyen is calling attention to is hardly new. And at "fault" is, in fact, the rather good news that people in Germany are living longer on average. But that means that pension payments must be made longer. As such, the federal government would like to begin sinking pension rates in relation to income levels - from a current rate of 51 percent to 43 percent by 2030.

A system in crisis

But if a "normal" earner - and around one third of all full-time employees in Germany earn less than the 2,500 euros modelled above - is set to receive a pension putting him near the poverty line, then "nothing less than the legitimacy of the entire pension system is at stake for the younger generation," von der Leyen said.

Pensions that may be too low are not the only problem for Germany's social security system. There are questions about fairness. Those who have paid little or nothing into the pension system are still eligible for a basic subsidy to get by. What motivation do people have to work harder during their careers if they cannot expect to receive more upon retiring than those who have contributed nothing to the system?

The minister has proposed a plan in which retirees can qualify for up to 850 euros per month provided they meet two conditions. They must prove they paid into pension coffers for years and have also set up private retirement accounts. Funding for the extra pension payments would come from the existing pension system. But some members of her party oppose that concept. Since young people in particular have low expectations for public pension funds, it's the wrong approach to expect them to surrender more of their salaries to cover the extra payments, said Jens Spahn, a member of a group of young politicians in the conservative CDU/CSU fraction within the German parliament.

"A tax-funded basic pension for everyone would be more honest," Spahn wrote on his Facebook page in response to fellow CDU member von der Leyen.

Introducing extra payments as an incentive for workers, per von der Leyen's suggestion, has also met with opposition from her party's junior coalition partner, the FDP.

"There is no agreement on that in our coalition contract," said the FDP's chair Rainer Brüderle in an interview with the magazine "Focus." The FDP's deputy chair and spokesman on retirement issues, Heinrich Kolb, claimed that offering extra incentive payments would overburden the pension system.

Only for the few?

Andrea Nahles, the general secretary of left-leaning opposition party SPD, charged Ursula von der Leyen with having failed to combat the threat of growing poverty among retirees. The problem, Nahles said, can only be addressed by way of binding labor laws and the introduction of a mandatory minimum wage across the country.

"That's what Mrs. von der Leyen should be pursuing, rather than an extra pension payment that would be available to very few," Nahles told the "Bild" newspaper.

The socialist Left party's spokesman on pension affairs, Matthias W. Birkwald, called the figures presented by von der Leyen alarming but not surprising.

"Her diagnosis of the problem is correct, but her treatment is way off," Birkwald told DW. "The extra pension payments are like a tiger with no teeth in the fight against poverty among the elderly because the high hurdles this concept includes will make the payments available to only very few people."

Birkwald believes that low earners will not be able to finance a private retirement package of any sort. The Left's proposes raising the bar for poverty in old age to a much higher amount, demanding a minimum pension of 1,050 euros per month.

Birkwald added that von der Leyen's catastrophe scenario contains a flawed assumption. Pointing to long-term increases in productivity and continual economic growth in Germany, he believes reducing pension levels by 2030 is not necessary in the first place.

"We could very well maintain the current pension levels without requiring people to work longer. That would be doable," he said.

Four retirees in Germany
More and more retirees must look for jobs to supplement pensionsImage: picture-alliance/dpa
Labor Minister Ursula von der Leyen Photo: Maja Hitij/dapd
Von der Leyen's wants to incentivize working hard and saving with extra pension paymentsImage: dapd