The German government is continuing its gradualist reform of first and second pillar pension legislation with financial penalties for early retirement and minor reforms of company pensions.

The first pillar reform involves a reduction in state benefit for early retirement from age 60 of 3.6% per year before the age of 65. There will also be an increase in social security contributions of roughly 1% although a decision is still to be reached on the final figure of either 20.6% or 20.8%.

The government also plans to lower the social security ceiling for new pensioners by about 10% although this is still the subject of debate.

Frankfurt-based consultant Dieter Kleylein says: It is a hefty contribution increase combined with a fairly strong reduction in social security income, with the deduction applying to all future retirement cases.

Kleylein adds: "The focus is on new pensioners while current pensions remain unchanged, so will not create an immediate relief. The contribution rise creates an immediate relief for social security but increases the social cost to the economy."

The second pillar changes involve amendments to the private pensions act which limits the required indexation of new company pension commitments (see page 7) but he notes that the changes are of limited value to companies because they only involve employees who are not covered.

"The private pension act again does nothing to ease the situation for companies now, but only for arising pension levels and only for new commitments," he adds."