Friday

19th Aug 2022

German bank highlights EU pensions problem

  • Berlin: SPD has promised pensions top-ups ahead of next year's elections (Photo: Sascha Kohlmann)

German people who enter the labour market today will have to work until they are 69 if they want the same level of pensions as their predecessors, the German central bank has said.

The Bundesbank, in a report out on Monday (15 August), noted that the state would not be able to keep payouts at current levels of 43 percent of average income after 2050 unless the retirement age went up or pensions contributions increased.

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The retirement age is in any case due to rise from 65 to 67 by 2030, but the bank said this should go up again to 69 at some stage before 2060.

"Further changes are unavoidable to secure the financial sustainability [of the pension system]”, it said. “Overall, there is evidence that a longer working life and a higher statutory retirement age should be given more consideration.”

It added that the option of higher premiums would harm economic growth and quality of life.

Higher premiums “raise the strain on those paying the contributions, and an increasing, high burden of payments overall has negative consequences on economic development”, the bank said.

Pensions are set to be a big issue in federal elections next year because older voters tend to turn out in higher numbers than young people.

The centre-left SPD party has already promised to top-up the lowest pensions, putting chancellor Angela Merkel under pressure.

But Merkel’s spokesman, Steffen Seibert, ruled out any policy change for the time being.

"Retirement at 67 is a sensible and necessary measure given the demographic development in Germany. That's why we will implement it as we agreed - step by step,” he told journalists on Monday.

“There are always discussions and sometimes the Bundesbank also takes part in such discussions.”

The bank report linked the problem to “demographic changes”.

It noted that the generation of people born shortly after World War II was now retiring and that life expectancy was higher, but at the same time birth rates were lower than in the post-WWII surge meaning that workers’ contributions to state coffers were failing to keep up.

The issues affecting the eurozone’s largest economy are also reflected elsewhere in the bloc.

According to European Commission statistics, Germany has the second highest proportion of people aged 65 or over (21 percent) after Italy (21.7 percent).

Many of the wealthy countries in western Europe have similar levels.

Poland, by contrast, has just 15 percent, while Turkey, which is still slated to one day join the EU, has just 8 percent of people aged 65 or more.

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Conditions have been met for the German government to allow a temporary lifetime extension of three remaining nuclear reactors, according to the Wall Street Journal, as the country is facing a likely shortage of gas this winter.

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