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Germany’s extra pension spending should tackle poverty risk – OECD

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Germany should focus the additional pension entitlements it is planning on the task of reducing old-age poverty risks, the OECD has recommended in its latest survey of the country’s economy. 

Funding for such spending should come from general tax revenue, it advised.

In its 2014 economic survey of Germany, the OECD said the programme presented by the new government, which took office in December 2013, included measures to raise pension spending.

It said: “These measures make earlier retirement more attractive and are not targeted at alleviating future poverty risks among the elderly.”

The organisation noted that fiscal policy in Germany was expected to remain broadly neutral in 2014 and 2015.

The coalition agreement foresaw new spending commitments of around 0.4% of GDP this year and an extra 0.2% next year, it said. 

Most of the higher spending planned would go on more generous pension entitlements to be enacted in 2014, it said.

Higher pensions would be paid to women who gave birth before 1992, and works with long contribution records would be able to retire on a full pension two years before the legal retirement age, it said.

But it warned these reforms did not address future old-age poverty risks.

“Further pension spending pressures may arise if these poverty risks materialise and existing means-tested benefits for the elderly are considered insufficient,” it said.

It said funding increased redistributive spending for the elderly from general tax revenue rather than from social security contributions that could be more employment and growth friendly.

This method of funding would also meant the burden was shared more broadly and equitably among all tax payers, it added.

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