Deutsche Rentenversicherung, the manager for Germany’s pay-as-you-go first-pillar pension scheme, has criticised the government’s plan to cut subsidies in the budget drafted for 2024, warning that pension contributions could increase earlier in the future as a result.
The government plans to cut public subsidies, one source of income for the first pillar scheme alongside the contributions of employers and employees, by a further €600m in 2024. Moreover, the draft budget foresees a reduction of additional public subsidies by €600m for the period 2024- 2027, Deutsche Rentenvericherung (DRV) said.
“With the further reduction in the amounts of hundreds of millions [of euros], the government continues [with the plan] to stop financing commitments to the pension insurance,” it said in a statement.
It added that stabilising the budget has a high priority, but it must not come at the expense of the pensions. “Trust in the statutory pension [system] depends on the reliability of [pension] promises,” it added.
Reserves to finance pension payouts will go down more quickly in the next few years without subsidies, and the contribution rate must be increased earlier than previously planned – this is a burden on members and employers, it added.
The latest cut to the first pillar scheme adds to withdrawals of public funds from the DRV amounting to €500m for the years 2022-2025, it added. With the latest tabled cuts, the amount provided by the first pillar pension manager to reinforce the public budget amounts to at least €5bn, it said.
The cabinet is redrafting the 2024 budget for a parliamentary debate after the Constitutional Court prohibited the use of €60bn for the energy transition. It wants to keep the level of pensions at 48% of income in the long term, and turn the first pillar into a partially capital-funded system.