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Study casts doubts on Germany’s PAYG system

GERMANY - A new study indicates that returns for Germany’s pay-as-you-go pension scheme are headed into negative territory, meaning that future pensioners will get far less out of the scheme than they paid in.

According to the study, published by the Institute for Economy and Society in Bonn, male pensioners born in 1990 can expect to get back €0.99 on every €1 they pay into the state scheme. But male pensioners born after 2040 would get just €0.89.

And it found that female pensioners born after 2040 would see €1.11 for every €1 contributed.

Meinhard Miegel, co-author of the study, said that due to the falling returns, the government should simply provide a tax-financed “basic pension” like in the US.

The German Institute for Retirement Provision, which commissioned the study, said the results clearly showed that the state scheme “is simply not an attractive investment for young people in Germany”.

“Those who do not engage in private saving for retirement will face a terrible shock,” the Deutsche Bank-funded institute added.

The study’s findings were hotly contested by the German social affairs ministry and Bert Rürup, head of the German government’s panel of economic advisers.

Citing studies from the Federal Retirement Insurance Agency as well as Rürup’s own panel, the ministry stressed that returns from the state pension scheme would remain positive in the future.

“The findings from the DIA-commissioned study are based on unrealistic assumptions like attempting to calculate what the return will be 100 years from now,” the ministry said.

It added: “The study is only intended to boost the business of DIA’s sponsor, which is Deutsche Bank.”

Rürup agreed that returns from the state scheme would remain positive, adding that women and married couples in particular could expect comparably high returns.

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