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Revamping Germany’s Pension System

August 28, 2003

A government-backed commission presented its proposals to reform the German pensions system on Thursday. But whether Chancellor Schröder’s center-left coalition will adopt the recommendations is another matter.

Senior citizens may have less time to soak up the sun in the future.Image: AP

After nine months of hard, often thankless work, the so-called Rürup Commission handed over its final report to German Health Minister Ulla Schmidt Thursday morning. Entrusted with finding a way to revamp Germany's creaky pension system, the 26-member panel of experts has already seen many of its suggestions attacked by politicians of all stripes.

As details of the 377-page document leaked out in the past weeks, the head of the commission – economist Bert Rürup – has come under increasing fire. Among the most controversial proposals is a plan to raise the retirement age from 65 to 67 by 2035.

The commission also suggested freezing pension payouts at current levels until 2005 and again any time thereafter if the number of people receiving money exceeded the number of those contributing to the scheme. But Rürup defending the commissions suggestions after officially presenting the report at a press conference in Berlin.

“With these proposals – which take account of the interests of both young and old – the financing of social security would be much more justly spread over the generations,” Rürup said.

A change is imminent

Over the past months, Rürup faced a difficult task. Germany’s pension system is severely burdened by the country’s aging population.

Kind mit Sonnenhut
Image: BilderBox

With women having on average 1.4 children, well below the 2.1 needed to keep the population steady, an increased ratio of retired people to workers will strain the system.

Demographers have repeatedly warned that without reforms, a massive rise in government spending for pensions and health care will over-burden the government’s budget.

If implemented in their entirety, the Rürup proposals could bring pension payouts down to 40 percent of a person's gross salary by 2040 from the current 48 percent.

“Not a bible”

Fearing a backlash, the German government has been hesitant to clearly back the commission’s proposals. Earlier this week, Chancellor Gerhard Schröder stressed that they were not binding, saying the document was "not a bible" and that he hoped the "effective retirement age" could be maintained at 65.

Ulla Schmidt
Minister Ulla SchmidtImage: AP

Minister Schmidt (photo) said at the presentation in Berlin on Thursday that the recommendations would present the basis for reform decisions. She said the government would “thoroughly examine” the proposals and those which were “necessary and made sense for Germany and our social security” would be implemented.

Which elements of the Rürup report will be realized should become evident by fall. Franz Müntefering, the Social Democrats parliamentary floor leader, said this week that the center-left coalition of Social Democrats and Greens would present new bills for reforms in the pension and health care sectors in October.

Criticism from the minority

The commission was made up of representatives from the public and private sectors, as well as economists and politicians. But its recommendations were not backed by all of its members.

Labor leaders led a minority opinion, which is also being handed over in Berlin on Thursday. It rejects the proposal to raise the retirement age, saying it is more important to bring up the current average age of 60.5 to 65.

Ursula Engelen-Kefer, deputy leader of the German Trade Union Federation and also a commission member, said she was disappointed by the Rürup results. “We regret that the chances this Commission had were inadequately used and that those issues we were itching to deal with were not sufficiently considered,” she told German radio on Thursday.