Disagreements on how to finance future pension benefits in Germany could be one of the roadblocks on the path to form a so-called traffic-light coalition, or Ampel-Koalition, between the Social Democrats (SPD), the Greens and the Free Democrats (FDP).

The three parties are still conducting exploratory talks, with the goal to lay the basis for an agreement by the end of this week to build a parliamentary alliance to support the next government.

The next government will likely have to design pension policies to relieve the federal budget from financing the system with an amount that currently stands at nearly €100bn per year.

The Green party’s pension policies could represent a balance between the proposals of the Social Democrats and the Free Democrats.

The Greens would set up a state fund, Bürgerfonds, investing long-term in line with ESG principles, which mimics the proposal by the FDP of a statutory equity pension, Gesetzliche Aktienrente, a state fund based on the Swedish AP7.

The SPD has not proposed a state fund to finance future pensions, however, it is leaning towards a more general standard product for private pensions, still based on the Swedish model, and organised by the state.

The SPD, instead, along with the Greens, share the idea of maintaining a level of pensions at 48% of the average wage, and if there is room to even increase it.

The SPD and the Greens intend to expand the statutory pension potentially for all, including self employed, civil servants, freelancers and MPs. The FDP would introduce instead a retirement savings account without a mandatory clause to combine Riester-Rente, Rürup-Rente and the American 401K systems.

The idea of expanding and reinforcing the statutory pension system may hinder the efforts to form a traffic-light coalition as the FDP favours a flexible combination of the three pillars – pay-as-you-go, company and private pensions – giving insured people more freedom to decide how to invest pension savings.

Expanding the statutory pension system also means further expenses for the public finances, while the FDP considers observing the rule on the ‘debt brake’ – Schuldembremse – anchored in the Constitution as a red line not to cross.

The FDP also supports more flexible rules for investments of life insurers and pension funds in start-ups, equities and infrastructure projects.

Furthermore, the three parties share, in principle, the idea of a flexible retirement age. The FDP wants to make the retirement age flexible, again based on the Swedish model: those who retire earlier receive a lower pension; those who retire later receive a higher pension.

The Greens hold firm to 67 as the retirement age, but it would allow people to decide when they want to retire, also beyond the retirement age set by law.

The SPD opposes to a further increase of the statutory retirement age to avoid pension cuts for those who are not able to work longer. It would maintain the possibility for long-term insured to retire earlier without deductions on pensions.

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