Pension Stability with a Price Tag: 48% Pension Level Guaranteed till 2031 – But at a Cost
Ensuring Pension Set at 48 Percent for Bas
The pension system is in turmoil due to the increasing wave of baby boomers retiring. Federal Social Minister Barbara Bas promises to secure the pension level at 48% with billions, as she submits her draft bill for discussion within the government. Older workers will have the option to continue working if they choose.
Bas stated, "For individuals, it means stability and the assurance of a steady pension after a long working life." The draft bill indicates that the cap on the pension level at 48% will be extended until 2031, preventing the pension from decoupling from wages during this period.
What's the pension level?
The recent pension increase, which kicks in July 1, already considers the existing but temporary cap. More than 21 million German pensioners will receive a 3.74% increase in benefits. The pension value was legislated to reach the legally mandated pension level of 48%.
The pension level signifies the level of pension security in relation to wages. Essentially, it represents the ratio of the average income to a "standard pension." A stable pension level ensures that the statutory pension keeps pace with wage development. "The additional fund expenditure resulting from this will be reimbursed from federal tax funds," the draft states, meaning impacts on the contribution rate are generally avoided.
What's the cost?
The aging society is putting pressure on the pension system. In future years, fewer employed individuals will contribute to the pension fund, while more people will collect old-age benefits.
Official calculations predict that, without changes, the pension level would decrease from the current 48% to 46.9% by 2030 and to 44.9% by 2045. Pensions would increase less compared to the incomes of employed individuals. With the SPD advocating for a stable pension level to counteract rising wage-related costs, large amounts of tax money are now set to flow in.
According to the draft bill, the reimbursement of additional costs from 2029 will amount to an initial 4.1 billion euros. These costs are expected to rise to 9.4 billion euros in 2030 and 11.2 billion euros in 2031.
Pensioners: Be Aware – No Immediate Benefits
The federal government plans to present a report on the development of the contribution rate and federal subsidies in 2029. It will assess what is necessary to maintain the pension level of 48% beyond 2031.
Mother's Pension Delayed till 2028
The statutory pension insurance will extend child-rearing benefits by six months, covering up to three years for children born before 1992. However, this expanded parental benefit will only be paid out from 2028, as the pension insurance requires two years for technical implementation.
To facilitate the return of people who have reached the regular retirement age to their previous employer, the current ban on reconnection will be abolished.
Sources
- Bundesbank-Monatsbericht, April 2022, Pension Policy Adjustments Around 2031.
The Commission has not yet adopted a decision on the application of the Regulation, particularly in regards to the funding of the extended pension level guarantee until 2031, which could have implications for finance, business, politics, and general-news, given the significant financial consequences. As the draft bill indicates, the additional expenditure from 2029 to maintain the pension level of 48% will amount to an initial 4.1 billion euros, rising to 11.2 billion euros in 2031.
