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Germany’s Müntefering acts on pension benefits

GERMANY – Franz Müntefering, the new minister for social affairs to include pensions, will soon unveil a draft law barring cuts in the state pension benefit until at least 2009.

Speaking in Berlin last week, Müntefering said he had to take action now, as otherwise state pensioners would see their benefit cut on July 1. The reason for the likely cuts, Müntefering said, was a slight decline in wages for German workers in 2005.

In Germany’s pay-as-you-go (PAYG) system, the level of the state pension benefit is largely dependent on the development of workers’ wages.

On the other hand, Müntefering said that if workers’ wages improved in the next few years, the government would consider paying out a larger pension benefit, though not before 2010. The current Conservative-Social Democrat government is to serve until the next federal election in 2009.

Prior to Müntefering’s remarks, the government had already confirmed that it would freeze the benefit for 20 million state pensioners on July 1.

The minister also reaffirmed that the government would raise the legal retirement age to 67 by 2035 from 65 currently and, next year, increase the contribution to the state scheme to 19.9% from 19.5% of salary. That contribution is shared between employers and employees.

The measures are intended to shore up the embattled state scheme, which last autumn received an emergency €500m loan from the previous centre-left government to stave off a liquidity crisis.

The bailout was necessary after the scheme’s sustainable reserve had virtually evaporated. German law says the reserve must equal at least 20% of the scheme’s monthly expenditure, which is near €16bn.

Müntefering made no comment on the status of the reserve, but it is likely to have been replenished. This is due in part to a new law requiring German employers to forward their share of the scheme’s payroll tax two weeks earlier than usual.

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