The German government has not given up on its plan to reform the country’s pay-as-you-go first pillar pension system, planning to kick start a fund for equity investment next year, despite a budget crisis following the ruling of the Constitutional Court.

The equity fund – Aktienrente – will start next year with an initial funding of €12bn, finance minister Christian Lindner said.

“The law on the new pension package is not ready yet. It has not been discussed and approved by Parliament [Bundestag]. Therefore, the €10bn transactions [in equity investing] cannot take place this year,” Lindner added, explaining why the government has postponed the reform.

Without the pension package law there isn’t a legal basis for the foundation generational capital – Stiftung Generationenkapital – that would invest the assets, which can also see government bonds transferred to the foundation.

Globally diversified and long-term investments should be managed by a sovereign wealth fund in the form of a politically independent foundation, the liberal party FDP said. Nuclear waste management fund KENFO is the designated asset manager.

The cabinet decided last month to cut €10bn from the state budget earmarked to kick-off the reform of the first pillar pension system through the generational capital concept, after reviewing the state budget following a ruling of the Constitutional Court clarifying rules on the so-called ’debt brake’ – Schuldenbremse.

Christian Lindner Germany finance minister

Christian Lindner

Parliament will not approve the federal budget for 2024 by the end of this year, said Katja Mast, parliamentary whip of the Social Democratic Party (SPD), in a message sent to colleagues, according to reports.

The finance minister rebuffed speculations circulated recently saying the cabinet is abandoning the plan for Aktienrente and Generational Capital, and that this decision had to do with the need to save money by the government.

The capital stock generated by investing first pillar pension assets would help to stabilise pension contributions from the mid-2030s, and to reduce public subsidies amounting to close €100bn per year to support the pay-as-you-go system.

Annual public funds of €12bn would result in a capital stock of €258.9bn by 2037, which could reduce the contribution rate by 0.6 percentage points, according to a report of the German council of economic experts.

A capital stock of €454.6bn is necessary to cut the contribution rate by one percentage point from 2038. These could be achieved either with an annual payment of €21.1bn, or with an initial one-off payment of €229.6bn, the report added.

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