Nobody can blame the SPD for not making it into the coalition agreement. The pension level is to remain permanently at 48 percent and the contribution rate for the coming election period is to be stabilized at 20 percent. In addition, the new government does not want to raise the standard retirement age or improve the disability pension. Promised, kept. Good this way!
But that won’t be enough. The fact that no further cuts are made does not make the statutory pension future-proof. And it also closes non-existing gaps in supply for people with interrupted employment histories and persistently low incomes. As before, many in old age are threatened with social decline.
The popular reference to company and private old-age insurance is of little help here, as a look at the second and third pillars shows – the allegedly suitable default guarantees for the statutory pension are in a deep crisis: the low interest rate environment and falling returns, the dismantling of company pension systems and a lack of it Trust in Riester products is an unresolved problem.
The companies complain about increasing burdens from company pension commitments. And the private insurance industry is fleeing into products that do not even guarantee the repayment of the paid-in capital. The fact that volatile and risky financial markets are at war with the goal of stable and secure old-age incomes is not a new fact, but it is a proven one.
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Especially in comparison with the products of the private sector, the statutory pension appears solid with its unspectacular but secure payments and returns. It is currently by far the most stable pillar in the old-age provision building. But it doesn’t have to stay that way. There is no doubt that the statutory pension is also facing major challenges: interrupted insurance histories, low wages and demographic change create a huge need for reform.
Pension increases will be lower
But here the traffic light government’s plan to stabilize pension insurance has little or even wrong to offer. Rather, it deals with topics that have more to do with media populism than with sustainability in pension policy. For example, the pension increases to be expected for 2022 and 2023 according to current pension law are expected to be lower. The catch-up factor suspended as part of the extended pension guarantee, which offsets neglected pension reductions from previous years with pension increases in subsequent years, should take effect again – with the aim of ensuring the consistency of wages and pensions.
The finding that pensions are outstripping wages is simply wrong. This is because wages are expected to rise by around 16.9 percent between 2019 and 2024, while pensions will rise by 15.6 percent in the same period. Apparently, the FDP in particular forced the concession to allow the damping factors in the pension formula to continue to act at least until the stop line of 48 percent has been reached and to continue to offset any cuts that have not been made in the future.
But the real problem lies elsewhere. The coalition agreement makes a promise of stability that is essentially to be achieved through measures to preserve the structure. The stop line at the pension level and the rejection of rising retirement age limits prevent immediate deterioration, but they do not solve the future problems. Rather, financial problems are programmed, which are likely to increase the pressure for cuts in benefits.
The traffic light’s will to reform is not directed towards the pension insurance system and the pay-as-you-go system that supports it; it concentrates on opening the system to elements of funding – in view of the disastrous performance of fully-funded systems, this is a most astonishing directional decision. In order to secure the pension level and the pension contribution rate in a generational and long-term way, the new government wants to start partially funded the statutory pension insurance.
The volatility of the financial markets
To this end, the pension insurance is to receive a capital stock of ten billion euros from budget funds in a first step in 2022. At the same time, the pension insurance should be enabled to invest its reserves on the capital market in a regulated manner. So much for the coalition agreement.
Even if the funded part of the statutory pension is to be permanently property-protected for the contributors – the volatility of the financial markets is not out of the world.
She will move into the social security building and push back the pay-as-you-go system. Initially in a comparatively small step, but more will have to follow. Because one thing is clear: The ten billion euros will not be able to stabilize the contribution rate and pension level. Apparently there is a hidden agenda: It is not a question of securing the security commitments appropriate to the generations, but of changing the regulatory path.
In future, pension reform policy attention will no longer focus on the further development of the pay-as-you-go system, but on the introduction of further elements of funding. That would then amount to a creeping restructuring of the statutory pension insurance, which changes the pay-as-you-go system in a highly risky direction.
The rules of the financial markets should also be observed more closely in the second and third pillars of old-age provision. In the company pension scheme, the traffic light wants to allow investment opportunities that enable higher returns. This is likely to be derived from a policy of lowering guarantees.
What about the employers?
It remains completely open what the proposed public fund for private supplementary provision should look like. What kind of volume should the public law body create? Do all citizens pay in or only employees? And what about the employers? All open questions. Only one thing seems clear: The crisis of funded old-age security systems should be answered with even more funded! Understand that who wants.
At the same time, the welfare state mandate of adequate old-age insurance is in poor hands on the financial markets. Politics must bring him back – as the obligation to provide for the welfare state for the future. To this end, statutory pension insurance and pay-as-you-go systems must move into the center of the reform efforts.
The further development of pension insurance for employment insurance, the stabilization of the financial basis through a comprehensive compulsory insurance for all employment relationships, the readjustment of contributions and tax revenues and an appropriate security target above 48 percent are indispensable. Even moderately increasing contribution rates, borne by employers and insured persons, should not be taboo. With this in mind, the traffic lights should start making more progress.
The author: Hans-Jürgen Urban is a managing member of the IG Metall Executive Board.
More: The pension is the black spot in the coalition agreement