GERMANY – A New Year rise in individual social security contribution rates to enable Germany to meet its pay-as-you-go (PAYG) first pillar pension commitments is dominating the political landscape as 2002 comes to a close, according to a report by Bayerische Landesbank.

The heightened criticism of the PAYG system comes ahead of a New Year increase in pension insurance contributions from the current level of 19.1% to 19.5% from January 1st, 2003, alongside an increase in the income limit for the assessment of contributions from e4,500 (e3,750 in eastern Germany) up to e5,100 (e4,275 in eastern Germany).

In its economic report, the bank claims that German workers may be losing patience with a system where they feel that they are paying higher and higher contributions without receiving adequate provision after their retirement.

The paper notes that whereas only 14% of gross wages had to be paid by workers into the system in the late 1960s, the 2002 contribution rate of 19.1% was already one third higher than this.

And as the Bayerische Landesbank report notes, this is a situation that is only likely to get worse due to the demographic burden shift in the coming decades.

The bank points out that the rise in contributions next year was made necessary by lower than expected pension contribution revenues. Without the increases, Germany’s pension insurance carriers say they would no longer have been able to make full pension payments in the coming year.

The research paper also warns that the German government is facing mounting criticism that personal incomes in Germany are increasingly being used to consolidate the country’s ailing public sector finances.