GERMANY - A leading economist has called for the retirement age to be lifted to 70 by 2015 at the earliest to ease the tremendous pressure on Germany’s state-run pay-as-you-go pension scheme.
“I believe that in 10 years such a step would be necessary. We all know, though, how slow policymakers are, so the measure will be probably be undertaken 20 years from now,” said Klaus Zimmerman, director of the economic think-tank DIW in Berlin, in an interview with a Lübeck newspaper.
To help older people remain in work that long, Zimmerman said lower wages would have to be introduced for older workers. A combination of part-time work and an advance on their state pension also would facilitate matters, he added.
Zimmerman’s comments come just weeks after Germany’s social affairs ministry admitted that the state-run pension scheme will face a deficit of around €500m in the autumn – the first time in 20 years.
The deficit has resulted from a combination of dwindling revenues amid record unemployment (above 11%) and demographic changes. A sustainable reserve, used to plug holes in the state scheme, has also been used up.
However, pension experts dismissed Zimmerman’s remarks as premature, if not unrealistic. Franz Ruland, director of the German Association of Insurance Underwriters (VDR), said it would be difficult enough to persuade lawmakers to take the necessary step of raising the retirement age to 67.
Professor Bert Rürup, head of the government’s panel of economic advisers, agreed with Ruland. He said that if the retirement age were not raised to 67, either the pension benefit would have to be further reduced or the payroll tax for the scheme raised by between 0.6-0.8 percentage points. The current tax is 19.5% and is shared between employers and employees.
In a recent interview with IPE, Professor Rürup also observed that following the current government’s pension reforms of 2002 and 2004, the state scheme had been put on much more sound financial footing.
“Consider that as a result of these reforms, the level of benefit will sink to 43% (of a previous salary) from 2030 from 52% now. That’s a substantial decrease and I don’t believe it’s necessary to go much lower,” Rürup said.
“What has to happen now is that government has to stimulate employment, so that these and other reforms concerning the second- and third-pillar can have their full effect,” he added.