Transcript And for the part

The German Pension
System
By Christoph Wenzinger, Tom
Surgeon, Rebecca Hale,
Pierre-Emmanuel Leng and
Lizzie Simpson
Pension System: History

1889: Invalidity and old-age insurance
(Gesetzliche Rentenversicherung, GRV)
• 1.7% of wage, paid equally by employer and employee

1957: First big pension reform
• Transition from „Kapitaldeckungsverfahren“ to
„Umlageverfahren“
• „Kapitaldeckungsverfahren“: Contributions are accumulated 
individual assets. Insurance payments are financed by
contributions and interest on capital.
• “Umlageverfahren”: Contributions are not saved, but spent
immediately on financing actual pensions. (Generationenvertrag
/ contract between generations)
• Key feature of the reform: adjustment of pensions to the
general development of income (dynamische Rente / dynamic
pension)
Pension System: History II


1992: lowering of pension payments
2001: Introduction of the “Riester-Rente”
(Walter Riester, SPD)
(Amendment of the „Altersvermögensgesetz“ on 11 May
2001)
• In addition to the “Gesetzliche Rentenversicherung
(GRV)” that works according to the “Umlageverfahren”
• Works according to the “Kapitaldeckungsverfahren”
• Private retirement pension system, financial support
from the state, voluntary
What is a Pension?

‘A regular payment that is intended to
allow the saver to subsist without working
at a later point in his or her life.’
Comparison between German and
English pension system

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In England there are four common
pension schemes
1)Personal pension
2)Stakeholder pension
3)Company occupational pension
4)Basic state pension (BSP)
Germany

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In Germany there is a Pay As You Go
public pension system
Size of pension fund is derived from*
*sum of accumulated earning points
*the adjustment factor
*type of pension and its value
Statistics to show differences in
pensions for men and women

Under Schroeder’s government
• Average man’s pension = €1015
• Average woman’s pension = €508
• (in Western Germany)
Merkel’s Pension Reform



Induced by fewer workers having to
support more retired people.
People are living longer and birth
rates are in decline
40% people between 55-65 years of
age are still working-very low
percentage!
Action Taken

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Aim to raise pension age from 65 to
67
Encourage employers to offer defined
contribution schemes.
Ultimately hope to decrease the cost
of the pension bill in an ‘economically
struggling Germany.’
Schröders Government;
How pensions affected the people
Schröder's government is credited with implementing
Agenda 2010; this agenda included the following;
cuts in the social welfare system (national health
insurance, unemployment payments, pensions),
lowering taxes
reforming regulations on employment and payment

Consequences
•After 2002; SPD lost support due to the ‘third way’
combining the ordoliberal "social market" with neoliberalism.
•It was considered by many people to be dismantling of
the German welfare state!!
•High unemployment rate still remained a problem for
Germany
Under Merkels Government…


Appointment of Merkel; ‘the public was eager for the
government to get to work after six months of
political turmoil.’
more pro-American outlook- similar pension system as
Germany
AIMS

One measure taken; raising the top income tax rate

increasing a value-added tax from 16 to 19 per cent.

VAT increase is being put off till 2007

One problem; High labour costs

Economic investments e.g. increased parental leave
benefits and research spending

Rise in retirement age to 67 and decrease in pensions

Perusal of ‘trusting relations’ with United states
And for the part-time
workers?
In the EU

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Part time employment = 18.5% of total
employment in Europe
Netherlands, the United Kingdom, Sweden
and Germany = highest levels of part-time
working
More than 2/3 chose a part-time work
A good opportunity for old people

1984: Trading banking and Insurance
Trade Union (Gewerkschaft Handel,
Banken und Versicherungen, HBV)

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Part-timers must not be excluded from
pension
2000: 4th Euro Introduction Act (Euro–
Einführungsgesetz)

block model with part-time working in old
age
A good opportunity for old people
(contd.)

2003 Third and Fourth Acts for Modern
Services on the Labour Market:
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People can work older with part-time
jobs as on 1 July 2004
2004 Old-age Pensions Insurance
Sustainability Act:

Increase of the age limit to 63 between
2006 and 2008
But not only for old people

A lot of mothers are employed part-time
due to care of children
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Conditions:
1.
2.
3.

Does not lead to unreasonable losses of
pension entitlements
Child is 10 years old maximum
Where nursing care is provided
Special cases if more than 2 children
If employee earns less than 155€
The Economy and Pensions

German Population getting older- but only work
until 65- government stops receiving taxes and
contributions
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2050: Worker: Pensioner ratio 2:1, today 5:4

Schroeder: Agenda 2010: reform pension system

Need to discourage early retirement:
 50+ initiative
The Economy cont…
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2003- State pension deficit of €2.8billion
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2030- German market for private and
occupational pensions- 5 times that of today€5trillion
Unemployment
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2003- 8.3%
2005- 11.6%
Annual Growth -0.1%
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Increase contributions rather than reduce benefits
Predicated to be below 1% next year
2003- €10billion shortfall in pension insurance
system
Merkel Has Arrived…
In order to deal with economic and
pension crisis…
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Raise interest rates
Increase VAT to 19% over next
2 years
Reduce level of unemployment
Increase age of retirement to 67
(discourage early retirement)
Create employment for over 50’s
Increase contributions
Encourage private pensions
The Economy cont…
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If these reforms not
enforced, pensions set to
account for 18% of GDP in
near future
European level, Germany
state pays relatively high
amount into pension
system
Predicted to rise by
another 3%
CONCLUSION…
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Current PAYG system needs to be
reformed otherwise the state will not
be able to fund it
Need more uniformed system
Arrival of the new Chancellor- Angela
Merkel gives rise to new hope for a
swift and affective pension reform