Stable contributions require a large capital stock

pensioner

According to the coalition agreement, the SPD, Greens and FDP want to add a capital stock of ten billion euros to the pension insurance system from budget funds this year “in a first step”.


(Photo: dpa)

Berlin With the establishment of a funded pillar, the federal government wants to ensure more intergenerational equity in the statutory pension insurance system. According to the coalition agreement, the SPD, Greens and FDP also want to check whether there should be mandatory private provision with the option to opt out in the future.

However, there are still many question marks behind both projects, as a new report by the German Economic Institute (IW) for the New Social Market Economy Initiative (INSM) shows. For example, a huge capital stock would be necessary to noticeably dampen the burden of pension contributions on future generations.

This is shown by a model calculation by the economists Jochen Pimpertz and Ruth Maria Schüler. They are assuming a status quo scenario – still calculated optimistically – in which, in view of the demographic development, the pension level will fall from around 48 percent today to 44.4 percent by 2060 and the contribution rate from 18.6 to 23 in the same period. 6 percent increase.

The scientists then calculated how large a fictitious capital stock would have had to be in 2021 in order to be able to use current income to reduce the contribution rate by one percentage point, for example. In fact, stabilization of the contribution rate at 22 percent will only be necessary in the future, but the consideration gives an impression of the dimensions.

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Depending on the assumed return of three to five percent, assets of around 400 to 650 billion euros would have had to be held in reserve in 2021 in order to avoid a one percentage point increase in the contribution rate.

According to the coalition agreement, the SPD, Greens and FDP want to add a capital stock of ten billion euros to the pension insurance system from budget funds this year “in a first step”. However, it is still unclear, for example, which exact objectives the Federal Government associates with the funded pillar.

Still many unanswered questions

The Bochum finance scientist Martin Werding said at an INSM event: “The plan is on relatively shaky ground.” So far it is completely open when and for whom the funds are to be used. It is also unclear, for example, whether a capital stock should be built up over the long term and not touched on in order to then be able to cushion the necessary contribution increases from current income. Or should the capital itself be used up at a certain point in time in order to use it to finance pension entitlements?

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In any case, the envisaged start-up financing is little more than a drop in the ocean, according to the report. Even with an optimistic estimate of an annual return of five percent, the income from pension insurance would only increase by 500 million euros.

In order to be able to lower the contribution rate by one percentage point, however, 16.2 billion euros are required. Ten billion euros were not enough to influence the contribution rate even for a short time, said Reinhold Thiede, head of research and development at the German Pension Insurance Association (DRV).

The IW researchers also devote themselves in detail to the design options for mandatory private provision. The government first has to justify why it considers mandatory supplementary pension provision to be necessary, even though employees are already compulsorily insured in the statutory pension insurance system.

The unsatisfactory spread of Riester contracts alone cannot be a reason, because citizens have made other provisions for old age or could be secured by their partner’s income. “Compulsory saving” also restricts the scope for other possible forms of old-age provision, such as the purchase of a property financed by a mortgage.

Subsidy for low earners necessary

After all, the traffic light parties would have to think about subsidies for low earners who could not financially afford compulsory private provision. However, such a subsidy only makes sense if the expected savings in basic security in old age are higher than the subsidies.

From the experts’ point of view, the federal government must not rely solely on strengthening capital cover, but must also increase labor force participation and raise the standard retirement age in the long term.

Both measures would strengthen the pay-as-you-go pension system and help ensure the contribution rate and pension level security targets. “At the same time, this also reduces the requirements for the amount of capital stock to be formed and the returns to be achieved with it.”

The coalition suggests that there is no need to talk about the pay-as-you-go system, said financial scientist Werding. But this is a “huge mistake”.

More: “Share pension” of the traffic light: President of the pension insurance sees “many question marks”

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