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Germany: 2006 pension freeze is “speculation”

GERMANY - The German social affairs ministry says a newspaper report indicating that the government is likely to bar an increase in the state pension for the third consecutive time in 2006 is “total speculation”.

“A decision on what will happen with the state pension in 2006 will not be taken until next spring when the relevant economic data are available. Until then, all predictions about the pension are total speculation,” said Dagmar Reitenbach, a spokeswoman for the ministry.

Reitenbach was referring to a report in the Financial Times Deutschland indicating that the 20 million people drawing a state pension in Germany will see no increase in that benefit again next year.

Citing sources in the Social Democrat-Green government coalition, the newspaper said the weak German economy was again behind a likely freeze of the state pension. The government has already frozen the pension in 2004 and 2005 for basically the same reason.

Economics minister Wolfgang Clement was expected on Friday to cut the government’s GDP growth forecast for 2005 to 1.0% from 1.6% previously, following previous downgrades from economic forecasters.

Birgitt Bender, the Green’s parliamentary spokeswoman on pension issues, told the FTD that the weak economy threatened to cause another billion-euro deficit in the pay-as-you-go pension scheme.

Bender urged the government to take immediate steps to shore up the scheme’s finances, including cutting the legal limit for the scheme’s sustainable reserve to 10% from 20% currently. She said the Greens did not view the reserve a “sacred cow” in this regard.

According to the ministry, the sustainable reserve for Germany’s PAYG scheme totalled 32% of the scheme’s monthly expenditure at the end of 2004. The reserve was created to cover any short-term deficits in the scheme.

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