German Chancellor Gerhard Schröder has signalled a serious attempt to get to grips with the country’s DM30bn (E15.3bn) budget deficit by downgrading social security pension payments to a par with inflation for the next two years.
The announcement, within a comprehensive package of welfare reform, follows hard on the heels of suggestions to the German parliament by Walter Riester, minister for labour and social affairs, that Germans should be obliged to contribute 0.5% of their wages to personal savings plans - in a sign that the government is trying to get to grips with pension reform.
A spokesperson for the German ministry of labour and social affairs, explains: “ For the next two years pensions will only rise in line with inflation and then return to a level in line with net income increases. We have been told that this ministry, as the most financially burdensome government department must find DM12.8bn of cost savings.
“To this effect Walter Riester is looking to encourage Germans to save more for their own retirement, before he presents the final proposals for structural reform of the German pensions system at the end of the year.”
Riester had suggested a compulsory pensions payment from wages of 0.5% to begin in the year 2003, which he suggested would increase by 0.5% annually until after five years it reach-ed a level of 2.5% where it would re-main.
The initiative, however, was vetoed by the Greens and the Social Democrats. “Walter Riester has to look at the issue again now, but there will definitely be a basic shift away from reliance on social security to a pension funding system based on taxation before next year.
“And significant reforms for women without their own pensionable income are also on the agenda, with the suggestion that there should be a division of pensions between married couples if only one of the two work.”
Alf Ghodes, manager at consultants Watson Wyatt in Munich, comments: “This government initiative is definitely aimed at bridging the country’s budgetary deficit, I don’t think there’s any concrete movement yet on the pension funding question.
“I think a lot of people in Germany though are sympathetic to what the government is trying to achieve. It is certainly part of the biggest social welfare reform the government has done, and the inflation linking pensions issue is just a small part and people don’t seem perturbed about receiving slightly lower pensions.
“On the pension funding issue I think it could involve such major movements in Germany that the government will wait for the dust to settle on these welfare initiatives first.” Hugh Wheelan