Integrating a minimum pension – Mindestrente – in the German pension system based on the Austrian and Dutch models would effectively reduce the risks of old age poverty, contrary to the basic pension already in place, according to analysis conducted by the German Institute for Economic Research – DIW Berlin.

According to DIW, the risk of poverty in old age has increased in recent years, particularly for people aged over 65, from 14.6% in 2015 to 15.7% in 2019, and it will continue to increase significantly in the coming years.

“The minimum pension would be very effective to fight income poverty as it would guarantee a minimum income,” Johannes Geyer, deputy head of the department of public economics at the DIW Berlin and one of the authors of the analysis, told IPE.

A minimum period of insurance and signing up self-employed for a pension insurance are additional tools to try to reduce the prospect of poverty in old age, he added.

Looking at the Austrian system, the study pointed to a “compensatory supplement” in the statutory pension granted to earnings below a certain threshold for people insured for a period of 15 years following an income, but not an asset check.

In the Netherlands, the amount of statutory pension (AOW pension) is not based on income or assets but based on a person living in the country for 50 years. In principle everyone who lives in the country is included in the insurance, the study noted, regardless of their employment status.

“A general minimum pension would include fewer requirements [than the basic pension], for example a minimum insurance period of only 15 years in Austria or, even a lower barrier, [the requirement of] staying in the country in the Netherlands,” Geyer said, adding that this means a large part of the population would be reached.

The reforms carried out in Germany in the past years, in particular the introduction of the basic pension – Grundrente – and improvements to disability pensions have not adequately solved the problem of old-age poverty, according to DIW’s analysis.

The basic pension targets only a special group of persons, long insured and with low income. “The basic pension is actually not a basic pension, it is a supplement to the pension dependent on income and on long insurance periods,” which makes the group of people who benefit from it relatively small, Geyer said.

Parties’ views

The next government coalition will face the pressing prospect to find a compromise to reform the pension system also with the aim to reduce the chance of poverty in old age.

Only Die Linke [party] is currently demanding a real minimum pension, with a proposal very much based on the Austrian model, Geyer said.

The Greens put forward “an interesting proposal”, the so-called guarantee pension, that coupled with compulsory insurance for the self-employed and housing benefits “would come very close to a general income security,” he said.

The Free Democrats of the FDP party and the right-wing Alternative for Germany (AFD) prefer to increase the tax-free sum for social security.

“That would not mean a big change to the existing systems and people would have to continue to actively go to office in order to apply for [a form of] basic security,” he added.

According to DIW, the FDP wants to make 20% of the statutory pension tax-deductible, the AFD 25%. The SPD plans to stabilise the level of pensions and protect insured against the risks of lower income capacity, while the CDU/CSU will aim to improve disability pensions and better regulations for properties occupied by people in financial need.

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