Probably the best thing about the “Aktienrente” is the name. Because he combines the high return expectations associated with the term “share” with the term “pension”, which suggests security. It is uncertain whether the plan of finance minister Christian Lindner (FDP) and social affairs minister Hubertus Heil (SPD) can hold both.
Initially, ten billion euros from the federal budget are to flow into a share reserve to co-finance the statutory pension insurance. According to Lindner’s ideas – regardless of resistance from the Green coalition partner – this modest capital stock should grow to 150 billion euros over the next 15 years. If the Ministry of Finance has its way, the income from this “generational capital” will then be used to support statutory pensions from the mid-2030s.
This planned “generational capital” has hardly anything in common with the concept that the FDP propagated in the 2021 federal election campaign. The capital stock should not be built up by diverting contributions and thus at the expense of the financing basis of the statutory pension insurance. Rather, the financing basis of statutory pensions should be strengthened through the income from profitably invested federal funds.
Germany’s pension policy problem has been well known for decades. The baby boomer cohorts (mid-1950s to second half of the 1960s) will very soon retire and be replaced by significantly weaker cohorts.
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Therefore, from the end of the 1980s, the aim of politics was to moderately curb the increase in statutory pensions in order to share the financial burden of aging with pension recipients. The last big step in the direction of “sustainability” was the “Retirement at 67” decided in 2007 on the initiative of the then Social Affairs Minister Franz Müntefering (SPD), the implementation of which will not be completed until 2031.
Farewell to the consensus in the GroKo
The two grand coalitions of the years 2013 to 2021 said goodbye to this pension policy consensus. They were blinded by the employment-intensive upswing of the past decade. Several expensive reforms were passed, primarily in favor of pensioners and the baby boomer generation close to retirement, such as the pension from 63, the mother’s pension I and II as well as lower and upper thresholds for the pension level and the contribution rate.
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In return, there were no possible contribution rate reductions. The warnings of many pension experts to finance permanent improvements in benefits from temporary excess contributions went unheeded. It is noteworthy that the topic of aging was not addressed in the coalition agreement of the current traffic light government.
The long-term consequences of the reforms of the past decade are grave. According to calculations by the Ifo Institute, the contribution rate would have to rise from the current 18.6 percent to 25 percent in 2050 if the pension status quo is continued. Alternatively, VAT would have to be increased from 19 to around 30 percent in order to be able to finance the immense increase in federal subsidies. Neither seems likely.
Notwithstanding, it is recognized that because of better risk diversification, pension schemes that consist of a mix of PAYG and funded pensions are more resilient and productive than purely PAYG or purely funded schemes.
However, it is not possible to determine an optimal mixed ratio of pay-as-you-go financing and capital cover, since population structure, economic structure, integration into the international division of labor and capital market productivity can change over time.
The high old-age incomes that arouse envy in many countries are mostly the result of a combination of pay-as-you-go and funded old-age pension systems. Sweden is often seen as a role model. Since 1999, all employees there have had to invest 2.5 percent of their gross income in a funded pension system of their choice.
Therefore, in the interests of a stable pension provision that is as high as possible, there is much to be said for increasing the share of funded old-age income in Germany, which is low by international standards.
“double aging” problem
The main problems of the new share pension: It comes too late and its volume is small. Towards the end of this legislative period, the baby boomers will begin to retire. At the same time, life expectancy is continuing to increase. In this respect, the statutory pension insurance system will be confronted with “double aging” in the next 15 years or so.
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By the 2040s, when the baby boomers have largely died out, double aging will become simple aging driven only by the increase in life expectancy, which is far easier to manage.
In this respect, the income from the new capital stock hoped for by Ministers Heil and Lindner would already be very helpful – and not only in 15 years. In addition, the amount of expected income is quite manageable.
Assuming that the German state can borrow up to two percent, but that a return of six percent can be achieved on the capital market in the long term and that asset management does not incur any relevant costs, annual net income of six billion euros can be achieved with an investment capital of 150 billion euros.
In principle, there is nothing wrong with such interest differential transactions – if they work. The problem is that these assumed six billion euros annually currently correspond to the expenditure of the pension insurance system for about six days, with a sharp downward trend in view of the increasing volume of pensions.
Prof. Bert Rürup is President of the Handelsblatt Research Institute (HRI) and Chief Economist of the Handelsblatt. For many years he was a member and chairman of the German Council of Economic Experts and an adviser to several federal and foreign governments. More about his work and his team at research.handelsblatt.com.
The stock rent from the planned capital stock can therefore hardly be more than a modest element of the prospective co-financing. He is definitely not making the statutory pension insurance system a full standard of living guarantee, even if the minimum level of security of 48 percent were guaranteed. One could only speak of this if at least 70 percent of the earned income received in the last few years of work was replaced. But the statutory pension insurance is a long way from that.
The stock pension is therefore a small advance, but in no way a substitute for a private or company supplementary pension. The pension package II proposed by Social Affairs Minister Heil will not change this, with which the minimum level of security is to be permanently fixed and the upper limit for the contribution rate of 20 percent is to be abolished from 2025.
If this were to happen, the federal government would not only have to raise ten billion euros for “generational capital” for fifteen years, but would also have to finance a federal subsidy that increases with the pension contribution rate. Finance Minister Lindner would leave his successors with a heavy burden.
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