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Germany has unexpected PAYG pension reserve

GERMANY - Germany’s state-run pay-as-you-go pension scheme ended 2004 with a larger-than-expected sustainable reserve, according to the German social affairs ministry.

Under German law, the sustainable reserve must equal at least 20% of monthly expenditure for the PAYG scheme. The German government spends a bit more than €15bn each month on the scheme.

The ministry said that as of December 31 2004, the sustainable reserve equalled 32% of the monthly expenditure, or four percentage points more than an estimate made by pension experts in October 2004.

The ministry attributed the difference to higher-than-expected revenues from the payroll tax for the PAYG scheme. It said that while it was still analysing why these revenues were higher than expected, it could have been due to a higher overall Christmas bonuses paid to German employees. The payroll tax currently totals 19.5% of a monthly salary and is shared between employees and employers.

German social affairs minister Ulla Schmidt said: “This better-than-expected result for 2004 should ease the financial situation of the pension scheme in the coming months.”

“Whether this remains the case depends on how the economy performs. We are cautiously optimistic in this regard,” Schmidt added.

The sustainable reserve, which may run as high as 150% of monthly expenditure, was created to cover any short-term deficits in Germany’s PAYG pension scheme.

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