The Confederation of German Employers’ Associations (BDA) has slammed the government’s plan to cut funds to the first pillar scheme, saying the move could “irresponsibly set in motion a new spiral of contributions”.

The government is taking austerity measures, planning to cut €600m per year in subsides for the period 2024-2027 to Germany’s pay-as-you-go first-pillar pension scheme, that would lead to a relief for the public budget, according to the draft budget law – Haushaltsfinanzierungsgesetz – for 2024.

A further reduction in the amount of public subsidies for first pillar pensions will mean that the contribution rate will have to increase again sooner, or to a greater extent, the BDA said in a statement, echoing the same concerns of the first pillar manager Deutsche Rentenversicherung (DRV).

The further reduction in subsidies, taken while a “pension package worth billions” is being prepared, the BDA said referring to the Rentenpaket II that should reform the first pillar pension system turning it into a partially funded system, is “the opposite of a well-thought-out social policy”.

“This irresponsibly sets in motion a new spiral of contributions,” the group added in the statement.

The measure to rewrite the budget taken at the expense of the country’s social security system, which includes pensions, won’t lead to savings, while financing costs, sometimes even retroactively, may well shift to contributors, it added.

Additional burdens must be avoided, especially in the current economic situation, with a brake put on contribution rates and a clear roadmap to limit them below 40% again, the BDA said.

This is particularly true in the interests of companies with a higher number of employees and low-earning employees, that are particularly burdened by high contributions, it added.

The BDA also noted that part of the subsidies for the first pillar being cut is intended to return income from the eco-tax reform to savers.

“The traffic light coalition [consisting of the social democrats SPD, Greens and liberal party (FDP)] is once again showing that it is abusing ecologically motivated tax increases to increase the tax burden, instead of returning the additional income to society, as was once promised, losing its credibility on climate policy,” it added.

The BDA also floated the possibility of another lawsuit, after the one that led to the ruling of the Constitutional Court and to the rewrite of the 2024 budget, because of a €5.2bn cut until 2027 for unemployment insurance compensations.

The €5.2bn are contributions that are strictly earmarked for a purpose, and may not be used to finance the general state budget, it said.

Looking for IPE’s latest magazine? Read the digital edition here