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Germany plans PAYG subsidies - paper

GERMANY – The emerging Conservative-Social Democrat government plans to raise subsidies to the state pay-as-you-go (PAYG) pension scheme by €2.8bn to ease the enormous financial pressure on the scheme.

According to the Frankfurter Allgemeine Zeitung, the additional funding is necessary to prevent either cuts in benefits or increases in contributions to the scheme for the next four years. There are 20m state pensioners in Germany and the contribution to the scheme is 19.5% of an employee’s salary.

The newspaper also said the new government planned to raise the retirement age to 67 from 65 in increments from 2012 and would consider raising the health care tax from retirees to 80% from 50% currently.

The latter move would require a smaller government subsidy yet at the same time cut benefits to pensions by 4%.

The FAZ sourced its information from a document drawn up by a special work group that is agreeing the new government’s pensions policy.

Heading the work group are Franz Thönnes, deputy social affairs minister and a member of the SPD and Andreas Storm, pensions policy spokesman for the Conservative CDU/CSU.

Other measures in the document include a decision in 2007 on whether contributions to the second-pillar version of the so-called Riester pensions should remain free of social taxes beyond 2008 as well as an assessment of the Riester reforms.

In late October, the government released a study showing that since the Riester reforms were implemented at the start of 2002, around 60% of German salaried employees owned some type of corporate pension.

Finally, the document calls for increases in subsidies for those people who sign up for the third-pillar version of the Riester pension. The subsidies amount to a bonus for new-born children, which may total €300 from 2008.

The proposed measures are, however, subject to the new government’s ability to pay for them. Senior officials from the SPD and CDU/CSU are currently scrambling to close a structural deficit of €43bn in the federal budget.

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