The German Association of Actuaries (DAV) and its branch, the Institute of Pension Actuaries (IVS), have argued that the plan for a statutory funded pension falls short of a definitive solution to problems facing the country’s first pillar pension system.
The Social Democrats (SPD), the Free Democrats (FDP) and the Greens, now locked in negotiations to form a so-called ’traffic-light’ coalition, have delivered a preliminary agreement to reform the first pillar pension system by adding a capital funded component to the pay-as-you-go model.
The new government will grant in 2022 €10bn in funding from the federal budget to the Deutsche Rentenversicherung, which manages state pension scheme, and that can invest the reserves in capital markets.
“The start-up financing of €10bn that has been announced won’t solve the structural problems of the first pillar in the short-term, but rather it will contribute to a certain relief of the pension system in 20 years at the earliest,” said Friedemann Lucius, president of the IVS.
DAV and IVS are calling the government once again to design a model to finance pensions that looks towards the long term, fair for the generations of pension beneficiaries and based on actuarial standards.
Actuarial norms are “in essence very clear”, stating that if the level of pensions remains unchanged, and without an increase to retirement age, “then a significant amount of additional funds must flow into [financing] pensions”, said Herbert Schneidemann, DAV’s chair.
The coalition parties stated in the preliminary agreement their intention to reinforce statutory pensions, secure a minimum level of pension of 48% of the average wage, to avoid pension cuts and not to increase the statutory retirement age.
So far, however, the parties negotiating a coalition agreement did not answer the question on how to finance additional expenses for pensions in parallel with a high national debt and the costs to combat climate change, the associations said.
“A further development of our pension system will undoubtedly be one of the most complex tasks for the new government alongside the fight against climate change,” Schneidemann said.
Moreover, according to the a first analysis conducted by DAV and IVS, the first pillar system won’t be able to undertake the function of securing an adequate standard of living in old age even with an additional funded component.
For this reason company pension schemes and private pensions, coupled with a reduction in guarantees, are important to secure a certain standard of living in old age, the associations added.
A public fund set up to invest contributions to pay pension raises instead the question of defining appropriate governance and control mechanisms that guarantee its independence.