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Germany’s Eichel “to cut pension subsidies”

GERMANY – According to newspaper reports, Germany’s finance minister Hans Eichel, has announced plans to cut federal pension subsidies by around five billion euros.

Direct pension cuts are illegal, but it is believed that Eichel will increase the amount pensioners pay into health care schemes. At present pensioners pay less into the schemes than employed people.

According to the UK daily Financial Times, Eichel plans to use the cuts to part-fund the projected 15 billion euro shortfall in next year’s budget. Eichel is reported as saying in an interview with a south German newspaper that spending on pensions as part of the budget has increased from 14% to 29% over the last three decades, and that it cannot continue to increase.

The German government subsidises the pension system with 73.1 billion euros annually, says the FT. This year the government increased contributions to 19.5% of gross salary, but German economics minister, Wolfgang Clement, has ruled out further increases.

Elsewhere, Katrin Goering-Eckardt, Green Party co-parliamentary leader suggested his week that many retirees would not mind foregoing the regular annual pension hike, and would even accept a reduction. This comment is aimed at wealthier pensioners, and other ministers have stressed that smaller pensions should be protected.

Germany’s government subsidised pension scheme is one of the world’s most generous, where a full-career worker earning average wages can retire with a benefit that replaces 70% of pay. The government has tried to wean its people off reliance on the system and gradually reduce benefits, and increase exposure to second and third pillar pensions, but take-up has been slow.

Experts suggest further encouragement is needed if Germany is going to cope financially with its pensions payouts in light of an ageing population.


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