GERMANY – The Ruerup Commission has suggested raising the retirement age and cutting pension payments in what it termed a set of “realistic and practicable” proposals.

The 26-member panel, headed by academic Bert Ruerup, has finally put forward its proposals on achieving financial sustainability in Germany’s social security system. “I would say that most of it was highly expected,” said Carsten Eckert, divisional director of pension markets at HVB.

The measures put forward include a phased-in raising of the retirement age to 67 and a reduction in pension benefits.

Noting the demographic challenges facing the country, the panel wants a two-year hike in the retirement age. It says the increase should be introduced from 2011 in small gradations of one month per year. “The full increase will thus be staggered over 24 years.”

“I welcome the whole package as a package,” said HVB’s Eckert. He welcomed the proposal to raise the retirement age. “It’s a fair answer and we welcome that from the pension side.”

As well as raising the retirement age, Ruerup advocates cutting pension benefits “so as to lessen the burden on the contribution payers”.

The panel recommended cutting inflation-adjusted pension payments to about 62% of retirees' final gross salary, from 70%. Eckert said the proposal appears “symmetrical” across generations. “If it is symmetrical then it is fair,” he said.

The commission says that if its measures are adopted, the inflation-adjusted standard pension would rise from 1,170 euros a month to 1,429 euros in 2030.

It hopes that, if the age of retirement leads to longer working lives – and if workers take up the Riester-Rente personal pensions - then the overall level of gross pension provision would return to 48% by 2030.

Social security minister Ulla Schmidt said the panel “rightly makes clear that pensions must be cut over the longer term”. The government will decide in October whether to adopt all the panel's proposals, though Chancellor Schroeder has indicated the report would not be binding.

“The report presented by the Commission provides the political decision-makers with a realistic and practicable set of proposals for an enduring financial stabilisation of the social security system in Germany,” the report declared.

It makes it clear that any reform “should strengthen solidarity between the generations, not weaken it”.