GERMANY - Germany's Constitutional Court has upheld the government's legal right to freeze state pension benefits for budget reasons and thrown out a lawsuit seeking compensation for earlier freezes.
Germany's state-run pay-as-you-go (PAYG) pension scheme was under severe financial strain in 2004 and 2005 because of record unemployment and slow economic growth so to deal with the strain, the government froze benefits on Germany's 20 million pensioners for each of those years.
This move prompted a group of pensioners to bring a lawsuit before the Constitutional Court, in which they argued the freezes were tantamount to an "unconstitutional seizure of their assets".
The Court has since dismissed the lawsuit and ruled: "Germany's constitution may not be construed as to limit lawmakers' flexibility to ensure adequate financing of the state pension scheme.
"In view of the government's over-stretched budget of the time, the judges are of the opinion that it was not legally compelled to inject more cash into the state pension scheme to cover its short-term deficit," the Court added.
The Court also ruled the plaintiffs had no right to compensation as the freezes did not lead to "a significant decrease in the value of their benefits".
In early 2006, following the emergence of a new governing coalition of Conservatives and Social Democrats, pensions minister Franz Müntefering ended the freeze on state pension benefits until 2009.
Indeed, on the back of this year's economic recovery, Germany's 20 million state pensioners received an increase in their benefit equalling 0.54% per month. For a standard benefit equalling €1100, this means almost €6 more.