German unions are angry with the government for reneging on its guarantee to commit to the launch of a second pillar pension scheme. Chancellor Gerhard Schroeder last month won unions over by promising specific details about an employer pension scheme in the draft proposal for pension fund reform. Following the document’s publication, unions who had originally backed the chancellor, argue the government has broken its pledge.
Some organisations, including the IG metal workers union and DIHT, the German chamber of commerce, have criticised the government for doing too little and for overcomplicating what they have done. Schroeder’s government has procrastinated largely due to differing taxation in second pillar vehicles.
Finance minister Hans Eichel has apparently drawn up a proposal for introducing deferred taxation that Schroeder has vetoed as its introduction could lower pension payments. Schroeder doesn’t want to take the blame and is instead awaiting a federal court ruling due next spring on tax treatment for pension funds. It is widely believed the federal court is likely to ease the path towards introducing deferred taxation, thereby sparing Schroeder the blame.
The two sides are in discussion but a timetable for amendments, if indeed one exists, is unknown. According to Peter Koenig with Morgan Stanley in Frankfurt, the government is potentially playing with fire. “If the government manages after all to make this change which you might label a reform, they will safely win the next federal election in two years. If they don’t this issue will be really
critical,” he says.