Schröder under fire

Gerhard Schröder's new German centre-left/green coalition government has come under fire for offering conflicting messages to the German people on pensions reform.

The reduction of the first pillar pensions benefit rate from its present level of 70% down to 64% set to be implemented by the former Kohl administration, has been shelved by Schröder's SPD.

But the new coalition has already said it is creating a pensions committee to examine the burgeoning demographic problem. The group is set to produce a report on its findings in the year 2000.

Peter Koenig, head of product de-velopment at Germany's Commerz-bank, says the overiding message, though, is one of confusion: The need for reform of the pay-as-you-go (PAYG) system is urgent, and the sooner we face up to this the better. So, on the one hand the creation of a group to tackle pensions issues, which surprisingly is being driven on by the greens, is a positive step in the right direction."

Koenig believes one of the solutions for the creation of adequate second and third pillar system would be to appropriate money from the PAYG system and place it into a capital funding scheme. "We should continue with the lowering of retirement benefit levels by a couple of per cent and put it into the capital market to take advantage of interest rates and stock performance, and really boost the funding cause," he says.

Christian Urbitsch of ABA, the German pension funds association, feels the government direction on pensions is still unclear.

"The only real issue at the moment is that there is no issue - the ABA has not been informed of any working party, nor of any government direction on pensions. Certainly the cancelling of the social security reductions could be construed as a sign that no move to pension funding will be made in the near future.""

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