COMMENTARY - Germany’s state-run pension scheme has been thrown into chaos, but neither the governing centre-left coalition nor the Conservative opposition, which is likely to win September’s federal election, really cares.
With the election campaign in full swing, both sides do not want to upset voters by telling them the truth, which is: While the outgoing government’s pension reforms were a crucial first step, more difficult ones must be taken to prevent a collapse of the scheme’s finances.
Germans have learned that the scheme will face a €450m deficit next month. This has resulted from a toxic mix of dwindling revenues amid record unemployment (above 11%) and ongoing demographic changes. Things have deteriorated to a point that the finance ministry must bring forward an annual subsidy to the scheme and may extend it an interest-free loan.
It’s obvious that this alarming and absurd situation cannot continue. Yet, outrageously, none of the parties competing in the election have bothered to tackle pension reform in their election manifestos.
Though no excuse, it’s easy to see why the governing SPD and Greens didn’t. Having implemented major pension reforms during their seven years in power, they believe they’ve done their part. Their reforms included introducing tax-privileged second- and third-pillar pensions and making the generous state pension slightly less so amid the demographics.
It is more irresponsible that the Conservative CDU/CSU has avoided the issue. Consider that before a snap election was called, the parties’ main pensions spokesman had announced a sweeping reform for 2007. That reform would have entailed sensible measures like raising the retirement age, further adjusting the state pension for demographics and making the tax privileges for second- and third-pillar pensions permanent.
The best the CDU/CSU can do now is to promise households with children a rebate on their share of the 19.5% contribution for the state pension scheme. Such a cynical, vote-getting device will only add to the scheme’s financial woes.
Both political camps have rightly ruled out an increase in the scheme’s contribution, as that would further raise German labour costs. The CDU/CSU also gets kudos for wanting to stimulate employment by reducing the unemployment insurance contribution, which like for pensions is partly paid by employers.
Yet both camps should show integrity and leadership by embracing a pension reform that, for example, the CDU/CSU previously outlined. Germany’s state pension scheme simply cannot afford more lies and posturing.