Germany’s 603 Abgeordneten (members of parliament or MdBs) preside over a nation dejected at the prospect of the gradual erosion of their statutory pension system. Some observers suggest that the generosity of the MdBs’ pension scheme simply adds insult to injury.
Currently the monthly salary for an MdB is E7,009. After eight years’ service they become eligible for a pension under the non-contributory parliamentary pension scheme.
As with all parliamentary remuneration packages the problem is to find an appropriate benchmark. Pay and benefits have been linked to high level public service employees, specifically to the level of pay and benefits enjoyed by heads of local government responsible for an area with a population similar to that of a parliamentary constituency.
The terms of the scheme are generous: a member with eight years’ service is entitled to the minimum pension of 24% of salary. The entitlement increases by 3% of salary for each additional year of service; the maximum pension entitlement accrues after 23 years, in other words 69%. The pension is linked to the prevailing salary for an MdB and is taxable.
On leaving parliament all former MdBs receive a payment of one month’s salary for an MdB for each year of service, up to a maximum of 18 months or E126,162. There is no minimum term of service to qualify for this payment.
For example, a former MdB who had served for 15 years would receive a pension equivalent to 45% of the current salary, or E3,154, plus a payment of E105,135.
The pension can be drawn from the age of 65, which decreases by one year for each additional year of service above eight years to a minimum retirement age of 55. Members can retire earlier on health grounds. They cannot draw their pension until they leave parliament.
The annual cost of the scheme in terms of the total pension payment currently stands at E28m, which includes payments to widows and children of deceased MdBs.
Any other pension arrangements which an MdB may have from previous employment do not count towards the maximum entitlement from the parliamentary scheme. The exception is any pension arrangements arising from public service employment such as local government.
Within the first six months of a general election the president of the Bundestag has to propose a level of remuneration and benefits for MdBs to the political parties that are represented in the Bundestag. Any proposal for amendment is subject to a vote.
The president of the Bundestag also heads the administration of the Bundestag and as such is responsible for all matters connected with the compensation of MdBs including their pension arrangements. Day-to-day administration of MdBs’ pay and benefits is the responsibility of a small department.
As elsewhere in Europe, MdBs’ pension arrangements have been criticised for being overgenerous. “They receive it too early, pension benefits accumulate too quickly and unlike their counterparts in many other countries, they do not pay any contributions themselves,” says Hans Herbert von Arnim, professor of public law and constitutional theory at the German University of Administrative Sciences in Speyer, and a well-known commentator on this subject.
Karl Heinz Däke is president of the German Taxpayers Association, an independent body that lobbies for fair and efficient use of taxpayers’ money. He is critical of the MdBs’ scheme: “the average worker that pays into the statutory state pension needs to work at least 187 years to build a level of pension provision that an MdB accumulates in just eight years,” he says and adds: “this, at a time when the traditional forms of pension provision in Germany are being eroded is intolerable for both the pensioners and taxpayers. MdBs should have no more privileges in this area than the rest of the population.”
Germans have long had one of the best levels of pension provision in Europe. However, an ageing population and declining birth rate mean that the pension system is becoming unaffordable in its current form. The reforms which are currently being discussed in parliament are aimed at generating more self-provision to compensate for the gradual erosion of the first pillar scheme.
As von Arnim notes, “the pensions for the normal working population will need to be drastically reduced. This will be painful and could lead to demonstrations like those seen in Italy and France. At such a time it is inevitable that the pension arrangements for MdBs will come in for public scrutiny. So MdBs should lead by example and cut their own overgenerous pension benefits.”
Dieter Wiefelspütz, SPD spokes-man on domestic policy, is quick to counter the claim: “Parliamentary pensions have been downgraded two or three times in the last 15 years,” he says. “When I was elected to the Bundestag in 1987, it took 16 years to accumulate the full pension. Today it takes 22 years. Of course nobody is interested in that. Furthermore if pay levels had kept pace with pensions in the last 20 years MdBs would earn E2,000 per month more than we do now. Nobody wants to know that either.”
Wiefelspütz urges his critics to view the matter in context: “I am a highly qualified lawyer and I could earn three to five times as much if I worked elsewhere,” he says. “Professor von Arnim has a better salary and a better pension than me; even the manager of my local bank earns more than I do. So the criticism is exaggerated.”
He adds: “There are a thousand or so ministerial civil servants in Berlin who earn more than me or have a higher pension. So people who work for us earn more than us. Don’t you find that strange?”
Comparisons with other professions, particularly senior jobs in the private sector, are often made by parliamentarians in an effort to defend their own positions. But this does not satisfy Däke: “MdBs must be appropriately paid but we cannot compare them with directors of multinationals because the taxpayer foots the bill. We need to be prudent and economical with taxpayers’ money.”
Wiefelspütz takes a very different view. “There is much criticism in this country because there is also much envy,” he says. “We’re talking about state parliament with responsibility for a population of 82m and a budget of E250bn.”
He adds: “With my fellow MdBs I decide whether soldiers can serve abroad. I decide over war and peace, I elect the Bundeskanzler. An MdB has enormous responsibility and someone with a leading position in this state should be paid appropriately. This is not a banana republic.” He stresses: “Our principles are transparency and openness: you can see my tax return in the internet.”
Another argument that is often put forward in defence of the pension scheme is the fact that the job of an MdB is relatively uncertain serve for only a small part of their working lives and may have difficulty returning to professions which they might have left some time before.
Von Arnim disagrees: “The life of an MP is not as uncertain as one might think,” he says. “Once someone has been elected he has an enormous advantage in the competition for renomination. Furthermore, half of all parliamentarians come from civil service and by law they must be allowed to return to their old job once they cease to be an MP.”
Like the rest of Germany’s working population, civil servants will have to engage in some form of self provision to close the gap left by the erosion of state pensions. “I am very much in favour of civil servants having to take more responsibility for their pensions,” says Wiefelspütz. “That will have immediate consequences for MdBs, which is fine by me because I want no special privilege for being an MdB.” He adds: “the provision of the MdB will be reduced at the same rate as that of the civil servants’ scheme so there will be no unfairness.”
“I recommend that we establish a level of contributions for MdBs so that we can compensate for the loss of pension in the coming years step by step,” he continues. “We are currently in discussion with private insurance companies and the additional pension scheme could start from 2005.”
Meanwhile, von Arnim has a further suggestion to bring the MdBs’ scheme more in line with others: “I recommend that the salaries of MPs be significantly increased and that they finance part of their pensions themselves,” he says. “Then they would see how difficult it is for the average citizen to build an adequate pension. That would be very educational for politicians.”
“The idea that MdBs make a contribution and have an increase in their salary to compensate is well known,” says a sceptical Wiefelspütz. “I find it interesting, but if I want to get same pension that I get now my salary would need to increase to E9,500 or E10,000. And of course the German people would only see this huge increase in salary. So it would not work.”
Von Arnim points to the electoral system as a hindrance to any progress in this matter: “The problem is that those who would vote on any reform are those who would be affected by it,” he says. “Some MdBs make suggestions for reform, but these are often half-hearted, particularly when compared with the determination of the majority of MdBs to reject them.”
He adds: “With a system of proportional representation, politicians are not individually accountable because the electorate vote for parties and not politicians. If the people could vote for individual politicians there would be much more pressure on MPs to reform the pensions system.”
The MdBs’ scheme is undoubtedly generous, especially compared with the pension arrangements of some of their counterparts elsewhere in the EU. Viewed in context however, MdBs do not appear to disproportionately privileged in this regard, nor do they seem to lack political sensitivity to the degree suggested by their critics. Perhaps questionable is the political wisdom of setting up a non-contributory scheme in the first place.