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German state pension contributions ‘to rise’

GERMANY – Two German economists have predicted that despite recent reforms, it is highly likely that the statutory contribution to the state pension scheme will rise to 25% after 2030 against 19.5% now.

“The objective of the Riester reform in 2001 was to keep pension contribution rates below 22% until 2030. Our calculations indicate that there is only a 11.3% chance that the contribution rate will below 22% in 2030,” Hans Fehr and Christian Habermann wrote in a new academic paper.

The comments come in ‘Pension Reform and Demographic Uncertainty: the Case of Germany’.

“In our point forecast, it (the contribution) reaches a maximum of 25% after the year 2030,” the Würzburg University economists wrote.

They attributed the expected rise in the contribution, split between salaried employees and their employers, to demographic changes, including Germany’s declining birth rate and its ageing population.

The new paper comes just two weeks after the latest government report on the future of the state pension scheme.

According to the report, the statutory pension contribution – a significant non-wage labour cost – will rise to 19.9% from 2007 but remain below 20% until 2019. The report gave no estimate for the contribution beyond 2019.

Yet the government has already acknowledged that another chief aim of the Riester reforms, namely maintaining the state pension benefit at 67% of previous salary, cannot be achieved. Following the so-called AEG pension reform of 2004, the benefit is to decline to 43% from 2030.

Meanwhile, the demographic pressure on the state pension scheme, which currently has 20m pensioners, is likely to worsen in coming years.

A new study last week by a Berlin think-tank found that last year, Germany’s birth rate fell to 1.36 children per woman - its lowest level since 1945. The study also predicted that by 2050, the current birth rate would be halved.

In addition, pension experts expect that by 2030, there will be just two German workers for every pensioner instead of three currently.

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